Show patience before starting to lower rates: one of the vice-presidents of the Fed joined the cohort of officials of the American central bank on Wednesday in favor of this approach, however expressing his confidence in the trajectory of the ‘inflation.
“We need to continue to see favorable data before we can begin the process of reducing the federal funds rate,” Fed Vice Chairman for Banking Regulation Michael Barr said in a speech to economists from the National Association of Business Economics (NABE) in Washington.
After having raised its rates since March 2022 to curb demand and thus curb high inflation, the Fed now plans to start lowering them in the coming months.
Those responsible for monetary policy in the United States, in fact, want to be certain of the sustainability of the slowdown in inflation before launching the movement. Several of them have emphasized their desire not to start lowering rates too soon – which could cause a rebound in inflation.
“We want to make sure we don’t cut rates prematurely,” Mr. Barr said, but, at the same time, “we don’t want to wait too long and end up causing cracks in the labor market.”
He thus noted “risks on both sides”, between which the Fed will have to navigate to begin its monetary easing neither too early nor too late.
“The data suggests that we are currently on the right track. But it is very early to say whether or not we will achieve a soft landing”, that is to say a lasting fall in inflation without causing a surge. unemployment or even cause a recession, he warned.
The Fed’s number two said he “fully” supports what Fed Chairman Jerome Powell “called a cautious approach.”
Inflation slowed in January in the United States, to 3.1% year-on-year, according to the CPI index. But this disappointed analysts who saw it falling below 3%.
The inflation figures in January remind us, according to Michael Barr, “that the return to 2% inflation could be fraught with pitfalls, calling for “act with caution, as we have done”.
He stressed, however, that Fed officials are “convinced that we are on a path to 2% inflation.”
The Fed favors another measure of inflation, the PCE index, whose data for January will be published on February 29, and which, in December, remained stable at 2.6% over one year.