It is too early to start lowering rates, despite the trajectory of inflation which is gradually approaching its target of 2%, two officials of the American central bank (Fed) stressed on Wednesday, echoing the words of others members of the institution.
We have a labor market that is reaching historic levels of strength, declared the President of the Richmond Fed, Tom Barkin, who in 2024 will have rotating voting rights within the Monetary Policy Committee (FOMC). All indicators linked to employment are very solid, he detailed, citing job creation, the unemployment rate, vacant positions, and even unemployment registrations.
And inflation is falling, he said, strongly favoring patience to get where we need to get. A Fed governor, Adriana Kugler, for her part said she was satisfied with the progress in terms of inflation and (has) good hope that it will continue. But, she stressed, I will closely monitor the economic data to verify the continuation of this progress.
At some point, continued slowdowns in inflation and the labor market could make a rate cut appropriate, she said. The Fed, after raising its rates to their highest level in more than 20 years to curb high inflation, now plans to begin lowering them in the coming months.
A drop unlikely the next meeting
But the hopes of many market players who hoped that the movement would begin at the next meeting were dashed. The President of the Fed, Jerome Powell, insisted that it is unlikely that the committee will have reached a sufficient level of confidence in the trajectory of inflation by then for a first reduction to be decided.
And the President of the Cleveland Fed, Loretta Mester, warned on Tuesday of the risks for the American economy of prematurely starting to lower rates, saying that this would be a mistake and would compromise all the good work accomplished.
However, she added, if the economy develops as expected, I think we will regain this confidence later this year and we can then start lowering rates.