The American Federal Reserve (Fed) could ultimately be satisfied with just one rate cut this year, while the markets are hoping for two or three, an official of the institution estimated Wednesday during an interview with the channel CNBC.
Asked about the fact that he only envisaged a single reduction this year, the president of the Atlanta Fed, Raphael Bostic, confirmed that he expected this type of development.
The good performance of the economy in 2023 led me to think that we could move sooner. But inflation now has a more uneven trajectory and I think we will have to wait and see how things develop, explained Mr. Bostic.
According to him, we should expect inflation to slow much more slowly than many expected and we will have to be much more patient.
Under these conditions, the first, and therefore potentially only rate cut for 2023, could only take place at the end of the year, in the last quarter, according to what the data shows.
Some secondary data in the inflation figures made me a little concerned that things might move even more slowly than expected, Mr. Bostic added.
Inflation has not changed much compared to where we were at the end of 2023, insisted Raphael Bostic, we must continue to monitor it.
The record inflation observed with the economic recovery, which peaked at 9.5% in June 2022 in the United States, pushed the Fed to sharply raise its rates, going from 0% to 5.50% between March 2022 and August 2023, level at which they have remained since.
But the return of inflation to levels closer to the Fed’s target, set at 2%, must lead the institution to consider lowering its rates, with the markets anticipating a first reduction at the meeting scheduled for mid-June.
In February, the PCE price index, which is the one favored by the Fed for the conduct of its monetary policy, stood at 2.5%, up slightly compared to January, encouraging the central bank to exercise caution.
The next FOMC meeting, scheduled for April 30 and May 1, should end with a status quo, markets anticipate, according to CME aggregator FedWatch.
But the markets are still anticipating a possible first decline from the following meeting, in mid-June, while most Fed officials emphasize the need to exercise caution.