REUTERS
"Fed worried about cutting rates too soon, minutes of January meeting show"
By Howard Schneider and Lindsay Dunsmuir
February 21, 2024
WASHINGTON, Feb 21 (Reuters) - The bulk of policymakers at the Federal Reserve's last meeting were concerned about the risks of cutting interest rates too soon, with broad uncertainty about how long borrowing costs should remain at their current level, according to the minutes of the Jan. 30-31 session.
"Participants highlighted the uncertainty associated with how long a restrictive monetary policy stance would need to be maintained" to return inflation to the U.S. central bank's 2% target, said the minutes, which were released on Wednesday.
Whereas "most participants noted the risks of moving too quickly to ease the stance of policy," only "a couple ... pointed to downside risks to the economy associated with maintaining an overly restrictive stance for too long."
U.S. stocks were trading lower following the release of the minutes before recovering ground later in the session, while the U.S. dollar was little changed against a basket of currencies.
U.S. Treasury yields rose.
The minutes seemed to reinforce the recent message of Fed policymakers that they would be in no hurry to deliver on rate cuts that officials still expect to begin sometime this year.
In comments aired earlier on Wednesday on SiriusXM, Richmond Fed President Thomas Barkin cited concerns about persistent inflation for service industries and housing, and said data released since the central bank's last meeting, showing strong job growth and stronger inflation than anticipated, made any rate-cut call "harder."
"It definitely did not make things easier."
"It made things harder," Barkin said.
Top U.S. central bank officials, including Fed Vice Chair Philip Jefferson and Fed Governors Lisa Cook and Christopher Waller, may help further sketch out how the recent data may influence the discussion about possible rate cuts when they speak on Thursday.
"It is clear that the message from the minutes, coupled with Fed speakers out in force, is that they are concerned about moving too quickly, before they declare a final victory in quelling inflation."
"Given the uptick in prices, the Fed's concerns appear valid," said Quincy Krosby, chief global strategist at LPL Financial.
Data released last week showed underlying, or "core," consumer inflation remained unchanged at 3.9% annually, led by rising prices for housing.
'NOTABLE' RISKS
While Fed officials say they are confident the central bank's policy rate can be lowered later this year from the 5.25%-5.50% range maintained since July, the Jan. 31 policy statement was explicit about the need for "greater confidence" in falling inflation before rate cuts can commence.
The minutes cited concerns among "some" Fed officials that progress on inflation could outright stall if the economy continues to perform as strongly as it has, while Fed staff suggested some weak points in an economy policymakers like to characterize as unnaturally resilient - with growth above potential and an historically low 3.7% unemployment rate.
In presentations to policymakers, Fed staff took note of a variety of risks, from "notable" vulnerabilities in the U.S. financial system, including falling commercial real estate prices, to the possibility that "reducing inflation could take longer than expected," the minutes said.
That, in turn, might "slow the pace of real activity" more than expected.
After the publication of the minutes, investors in contracts tied to the Fed's benchmark overnight interest rate continued to see the central bank beginning to reduce borrowing costs in June.
The minutes also noted upcoming decisions on when and how to stop reducing the size of the Fed's balance sheet, with "many participants" suggesting a start to "in-depth" discussions on balance sheet policy at the March policy meeting.
The rapid easing in financial conditions during the fourth quarter, after the Fed began signaling that its rate hikes were likely over, had largely run its course by the time officials gathered at the end of January.
Since then, the picture has been mixed: Treasury yields have increased by more than a quarter of a percentage point, bringing an end for the time being to a decline in consumer and corporate borrowing costs, but stocks have continued to march to record highs.
Given what seemed to be falling inflation on the horizon, Ryan Sweet, chief U.S. economist at Oxford Economics, said the concern of Fed policymakers about cutting rates too soon "seems odd," and suggested that risks may be tilting towards overly tight policy beginning to weigh on the economy.
"If the central bank waits for clear signs that the labor market, or the broader economy, is deteriorating, they will be behind the curve," Sweet wrote.
"This could turn a 'soft landing' into a bumpier one."
Reporting by Howard Schneider; Editing by Paul Simao
https://www.reuters.com/markets/us/fed- ... 024-02-21/
THE FEDERAL RESERVE
Re: THE FEDERAL RESERVE
REUTERS
"Fed's Cook: need more confidence on inflation before cutting rates"
Reuters
February 22, 2024
Feb 22 (Reuters) - U.S. Federal Reserve Governor Lisa Cook on Thursday said that with inflation easing and the labor market normalizing, the risks to the economy have become "two-sided," but it's not yet time to reduce interest rates.
"I would like to have greater confidence that inflation is converging to 2% before beginning to cut the policy rate," she said in remarks prepared for delivery to Princeton University’s School of Public and International Affairs.
While it is "reasonable" to expect inflation to get to the Fed's 2% goal over time, the path toward that goal has been and could still be "bumpy and uneven," she said, citing recent stronger-than-expected readings on consumer price inflation.
At the same time, she said, the risks to the economy are no longer weighted toward excessive inflation alone.
Supply chains have recovered, and so has labor supply; consumer spending has been strong, but with wage growth slowing, there are "reasons to expect some moderation going forward," she said.
There are also a raft of uncertainties ahead, including the potential for conflict in the Red Sea to impede supply more than it has so far, as well as longer-term issues including climate change, productivity growth and deglobalization.
As for monetary policy, she said, "I am now weighing the possibility of easing policy too soon and letting inflation stay persistently high versus easing policy too late and causing unnecessary harm to the economy."
Once data delivers greater confidence that disinflation is sustainable, she said, "at some point" the Fed will be able to cut rates.
"We should continue to move carefully as we receive more data, maintaining the degree of policy restriction needed to sustainably restore price stability while keeping the economy on a good path," she said.
The U.S. central bank has held its policy rate steady in the 5.25%-5.5% range since last July, and minutes of its policysetting meeting last month show most central bankers were worried about moving too quickly to ease policy.
Traders are betting the Fed will not start cutting interest rates until its June 11-12 meeting.
Reporting by Ann Saphir and Dan Burns, editing by Deepa Babington
https://www.reuters.com/markets/us/feds ... 024-02-22/
"Fed's Cook: need more confidence on inflation before cutting rates"
Reuters
February 22, 2024
Feb 22 (Reuters) - U.S. Federal Reserve Governor Lisa Cook on Thursday said that with inflation easing and the labor market normalizing, the risks to the economy have become "two-sided," but it's not yet time to reduce interest rates.
"I would like to have greater confidence that inflation is converging to 2% before beginning to cut the policy rate," she said in remarks prepared for delivery to Princeton University’s School of Public and International Affairs.
While it is "reasonable" to expect inflation to get to the Fed's 2% goal over time, the path toward that goal has been and could still be "bumpy and uneven," she said, citing recent stronger-than-expected readings on consumer price inflation.
At the same time, she said, the risks to the economy are no longer weighted toward excessive inflation alone.
Supply chains have recovered, and so has labor supply; consumer spending has been strong, but with wage growth slowing, there are "reasons to expect some moderation going forward," she said.
There are also a raft of uncertainties ahead, including the potential for conflict in the Red Sea to impede supply more than it has so far, as well as longer-term issues including climate change, productivity growth and deglobalization.
As for monetary policy, she said, "I am now weighing the possibility of easing policy too soon and letting inflation stay persistently high versus easing policy too late and causing unnecessary harm to the economy."
Once data delivers greater confidence that disinflation is sustainable, she said, "at some point" the Fed will be able to cut rates.
"We should continue to move carefully as we receive more data, maintaining the degree of policy restriction needed to sustainably restore price stability while keeping the economy on a good path," she said.
The U.S. central bank has held its policy rate steady in the 5.25%-5.5% range since last July, and minutes of its policysetting meeting last month show most central bankers were worried about moving too quickly to ease policy.
Traders are betting the Fed will not start cutting interest rates until its June 11-12 meeting.
Reporting by Ann Saphir and Dan Burns, editing by Deepa Babington
https://www.reuters.com/markets/us/feds ... 024-02-22/
Re: THE FEDERAL RESERVE
REUTERS
"Fed's Jefferson sees progress on inflation, says rate cuts linked to broad set of data"
By Howard Schneider
February 22, 2024
WASHINGTON, Feb 22 (Reuters) - Federal Reserve Vice Chair Philip Jefferson said on Thursday he will be looking across a broad set of economic indicators to convince him it is time to cut interest rates, but gave no indication when that first cut might come.
"I'm not just looking at one indicator to indicate whether or not that's the time to start," Jefferson said in a presentation to the Peterson Institute for International Economics.
"I think there would have to be a body of evidence about macroeconomic performance that would then weigh in the direction of okay, now is the time."
"I am looking at the totality of the data in the economy," he said.
"Labor markets, growth, productivity on the real side and inflation on the price side."
"I don't think it's necessarily one thing that we would have to see before we think about cutting."
"I think we want to see evidence that inflation is sustainably at or going toward our target level."
In his prepared remarks and a question-and-answer session, Jefferson did not indicate when he thought the Fed's policy easing might begin, a question that investors and analysts are eager to have answered.
The Fed held its benchmark overnight interest rate steady in the 5.25%-5.50% range at its policy meeting last month, and minutes of that session showed broad consensus that more evidence of falling inflation is needed before it can be lowered.
Data since the Fed's Jan. 30-31 meeting, including stronger-than-expected job growth and consumer inflation, has pushed back expectations that the Fed could lower rates as soon as its March 19-20 meeting, with investors now anticipating an initial reduction at the central bank's June 11-12 meeting.
Fed Governors Lisa Cook and Christopher Waller are due to speak later on Thursday.
RISKS TO OUTLOOK
Jefferson said he remained "cautiously optimistic" about the U.S. central bank's progress in bringing inflation back to its 2% target despite the recent strong job and consumer price data.
Fed staff estimates, he said, show the central bank's preferred measure of inflation, the personal consumption expenditures price index, rose 2.4% over the 12 months through January, down from 2.6% in the prior month, with prices stripped of volatile food and energy costs increasing 2.8% versus 3%.
The actual data will be released next week, but Jefferson said the staff estimates indicate that a "pronounced" drop in inflation continues.
"I remain cautiously optimistic about our progress on inflation," Jefferson said.
"If the economy evolves broadly as expected, it will likely be appropriate to begin dialing back our policy restraint later this year."
Jefferson, still early in his tenure as the Fed's top policy spokesperson, said risks to his outlook might come from strong consumer spending that "could cause progress on inflation to stall," weakening job growth that might warrant earlier rate cuts, and outside shocks that might push up prices.
He did not, however, lean into any of those risks as his base case, or indicate when he thinks the Fed might find the confidence it needs to begin cutting rates.
Jefferson instead devoted much of his talk to reviews of past monetary easing cycles, including a mid-1990s episode when the Fed cut rates in response to easing inflation - rather than an economic weakening - that might be the best parallel to the current situation.
Reporting by Howard Schneider; Editing by Paul Simao
https://www.reuters.com/business/feds-j ... 024-02-22/
"Fed's Jefferson sees progress on inflation, says rate cuts linked to broad set of data"
By Howard Schneider
February 22, 2024
WASHINGTON, Feb 22 (Reuters) - Federal Reserve Vice Chair Philip Jefferson said on Thursday he will be looking across a broad set of economic indicators to convince him it is time to cut interest rates, but gave no indication when that first cut might come.
"I'm not just looking at one indicator to indicate whether or not that's the time to start," Jefferson said in a presentation to the Peterson Institute for International Economics.
"I think there would have to be a body of evidence about macroeconomic performance that would then weigh in the direction of okay, now is the time."
"I am looking at the totality of the data in the economy," he said.
"Labor markets, growth, productivity on the real side and inflation on the price side."
"I don't think it's necessarily one thing that we would have to see before we think about cutting."
"I think we want to see evidence that inflation is sustainably at or going toward our target level."
In his prepared remarks and a question-and-answer session, Jefferson did not indicate when he thought the Fed's policy easing might begin, a question that investors and analysts are eager to have answered.
The Fed held its benchmark overnight interest rate steady in the 5.25%-5.50% range at its policy meeting last month, and minutes of that session showed broad consensus that more evidence of falling inflation is needed before it can be lowered.
Data since the Fed's Jan. 30-31 meeting, including stronger-than-expected job growth and consumer inflation, has pushed back expectations that the Fed could lower rates as soon as its March 19-20 meeting, with investors now anticipating an initial reduction at the central bank's June 11-12 meeting.
Fed Governors Lisa Cook and Christopher Waller are due to speak later on Thursday.
RISKS TO OUTLOOK
Jefferson said he remained "cautiously optimistic" about the U.S. central bank's progress in bringing inflation back to its 2% target despite the recent strong job and consumer price data.
Fed staff estimates, he said, show the central bank's preferred measure of inflation, the personal consumption expenditures price index, rose 2.4% over the 12 months through January, down from 2.6% in the prior month, with prices stripped of volatile food and energy costs increasing 2.8% versus 3%.
The actual data will be released next week, but Jefferson said the staff estimates indicate that a "pronounced" drop in inflation continues.
"I remain cautiously optimistic about our progress on inflation," Jefferson said.
"If the economy evolves broadly as expected, it will likely be appropriate to begin dialing back our policy restraint later this year."
Jefferson, still early in his tenure as the Fed's top policy spokesperson, said risks to his outlook might come from strong consumer spending that "could cause progress on inflation to stall," weakening job growth that might warrant earlier rate cuts, and outside shocks that might push up prices.
He did not, however, lean into any of those risks as his base case, or indicate when he thinks the Fed might find the confidence it needs to begin cutting rates.
Jefferson instead devoted much of his talk to reviews of past monetary easing cycles, including a mid-1990s episode when the Fed cut rates in response to easing inflation - rather than an economic weakening - that might be the best parallel to the current situation.
Reporting by Howard Schneider; Editing by Paul Simao
https://www.reuters.com/business/feds-j ... 024-02-22/
Re: THE FEDERAL RESERVE
REUTERS
"Fed's Harker: Timing of first central bank rate cut may be close"
By Michael S. Derby
February 22, 2024
Feb 22 (Reuters) - Federal Reserve Bank of Philadelphia President Patrick Harker said on Thursday a rate cut is the next step for monetary policy and the timing of that action is getting closer, although he declined to say when the central bank will be able to lower the cost of short-term borrowing.
“I believe that we may be in the position to see the rate decrease this year,” Harker said in a speech given before the 2024 Lyons Center for Economic Education and Entrepreneurship event, hosted by the University of Delaware.
“But I would caution anyone from looking for it right now and right away,” he said.
"We have time to get this right, as we must.”
In comments after his formal remarks, Harker said a May rate cut was possible but not likely, as he's eyeing the start of action some time in the second half of the year.
Harker said he needs a couple more months to gain confidence the economy will support an easing.
Whatever the Fed does will be driven by incoming data, he said, adding when it comes to a cut, "I think we're close, give us a couple of meetings."
Harker, who does not hold a voting role on the rate-setting Federal Open Market Committee (FOMC) this year, spoke on a day in which a number of Fed officials were also weighing in on the outlook for the economy and monetary policy.
On Wednesday the Fed released minutes from its January FOMC meeting that showed officials eying rate cuts, albeit cautiously.
Fed Chair Jerome Powell has already taken the Fed’s March meeting out of the running for action, and markets are currently expecting an easing to come some time in the summer.
Harker drove home the point that when the Fed does cut rates it must act at the right time.
“I find our greatest economic risk comes from acting to lower the rate too early, lest we reignite inflation and see the work of the past two years unwind before our eyes,” he said.
The bank president said that inflation is moving back to the 2% target but he still wants more evidence it is doing so durably.
He noted the so-called last mile of hitting the target could be challenging.
Recent higher-than-expected consumer price level inflation was a reminder that progress on lowering price pressures can be bumpy and uneven, he said.
When it comes to gaining confidence inflation is on track for 2%, he said he was not looking for much more data.
"I just wanted to get a couple more months" of news to be sure.
Harker also said U.S. growth continues to be strong, and the robust labor markets are coming into better balance.
Harker also said news of job layoffs doesn't look to be a recessionary signal to him, adding that he views the consumer sector as strong.
Harker also weighed in on the Fed’s balance sheet drawdown effort, which sees the central bank trimming its bond holdings to withdraw liquidity from the financial system.
He said market liquidity levels remained strong, and echoing the meeting minutes, he expressed support for slowing the pace of the drawdown before stopping it.
Harker said that was important because there is great uncertainty about the point where liquidity will grow too tight in markets.
Reporting by Michael S. Derby; Editing by Andrea Ricci and Bill Berkrot
https://www.reuters.com/markets/us/feds ... 024-02-22/
"Fed's Harker: Timing of first central bank rate cut may be close"
By Michael S. Derby
February 22, 2024
Feb 22 (Reuters) - Federal Reserve Bank of Philadelphia President Patrick Harker said on Thursday a rate cut is the next step for monetary policy and the timing of that action is getting closer, although he declined to say when the central bank will be able to lower the cost of short-term borrowing.
“I believe that we may be in the position to see the rate decrease this year,” Harker said in a speech given before the 2024 Lyons Center for Economic Education and Entrepreneurship event, hosted by the University of Delaware.
“But I would caution anyone from looking for it right now and right away,” he said.
"We have time to get this right, as we must.”
In comments after his formal remarks, Harker said a May rate cut was possible but not likely, as he's eyeing the start of action some time in the second half of the year.
Harker said he needs a couple more months to gain confidence the economy will support an easing.
Whatever the Fed does will be driven by incoming data, he said, adding when it comes to a cut, "I think we're close, give us a couple of meetings."
Harker, who does not hold a voting role on the rate-setting Federal Open Market Committee (FOMC) this year, spoke on a day in which a number of Fed officials were also weighing in on the outlook for the economy and monetary policy.
On Wednesday the Fed released minutes from its January FOMC meeting that showed officials eying rate cuts, albeit cautiously.
Fed Chair Jerome Powell has already taken the Fed’s March meeting out of the running for action, and markets are currently expecting an easing to come some time in the summer.
Harker drove home the point that when the Fed does cut rates it must act at the right time.
“I find our greatest economic risk comes from acting to lower the rate too early, lest we reignite inflation and see the work of the past two years unwind before our eyes,” he said.
The bank president said that inflation is moving back to the 2% target but he still wants more evidence it is doing so durably.
He noted the so-called last mile of hitting the target could be challenging.
Recent higher-than-expected consumer price level inflation was a reminder that progress on lowering price pressures can be bumpy and uneven, he said.
When it comes to gaining confidence inflation is on track for 2%, he said he was not looking for much more data.
"I just wanted to get a couple more months" of news to be sure.
Harker also said U.S. growth continues to be strong, and the robust labor markets are coming into better balance.
Harker also said news of job layoffs doesn't look to be a recessionary signal to him, adding that he views the consumer sector as strong.
Harker also weighed in on the Fed’s balance sheet drawdown effort, which sees the central bank trimming its bond holdings to withdraw liquidity from the financial system.
He said market liquidity levels remained strong, and echoing the meeting minutes, he expressed support for slowing the pace of the drawdown before stopping it.
Harker said that was important because there is great uncertainty about the point where liquidity will grow too tight in markets.
Reporting by Michael S. Derby; Editing by Andrea Ricci and Bill Berkrot
https://www.reuters.com/markets/us/feds ... 024-02-22/
Re: THE FEDERAL RESERVE
REUTERS
"Fed's Williams says rate cuts likely to happen 'later this year'"
Reuters
February 23, 2024
Feb 23 (Reuters) - New York Federal Reserve President John Williams sees the U.S. central bank on track to cut interest rates "later this year," despite stronger-than-expected inflation and labor market data in January, according to an interview with Axios.
"My overall view of the economy basically hasn't changed based on one month of data," Williams said in an interview, that was conducted on Thursday and published on Friday, noting that inflation's progress toward the Fed's 2% goal can be "a little bit bumpy," but that overall it and the economy more broadly are headed "in the right direction."
"At some point, I think it will be appropriate to pull back on restrictive monetary policy, likely later this year," Williams said, remarks that are in synch with those of other Fed policymakers who have been sounding somewhat cautious lately about starting to cut rates without more confidence on inflation's downward trajectory.
As vice chair of the Fed's rate-setting Federal Open Market Committee, Williams is an influential voice at the U.S. central bank, which has held its benchmark overnight interest rate steady in the 5.25%-5.50% range since last July.
He did not give any sense of his preferred timing for the start of rate cuts, nor of exactly what would trigger them, apart from an overall assessment that inflation is indeed headed sustainably toward the 2% target.
"It's really about reading that data and looking for consistent signs that inflation is not only coming down, but is moving towards that 2% longer-run goal," he told Axios.
"I don't think there's any formula, or one indicator, or something that will tell you that."
"It's really looking at all the information together, including these signs in the labor market and others and extracting the signal."
While a material significant change in the economic outlook could require a rethink, he said, "rate hikes are not my base case," Axios cited him as saying.
BALANCE SHEET
Fed policymakers are expected to start in-depth discussions next month about slowing the central bank's ongoing reductions to its $7.63 trillion balance sheet.
The goal, Williams said, "is to make sure that we get a nice, smooth process of continuing to reduce the balance sheet down to the ultimate level that we want to get to and allowing us to monitor and analyze and understand how that reduction in the balance sheet is meeting that test that we set out for ultimately stopping."
In other words, he said, slowing the balance sheet reductions will give the Fed time to assess where and when it ought to stop altogether, and help it avoid the kind of market disruptions that occurred when it was trimming its balance sheet in September 2019.
Reporting by Ann Saphir; Editing by Paul Simao
https://www.reuters.com/markets/us/feds ... 024-02-23/
"Fed's Williams says rate cuts likely to happen 'later this year'"
Reuters
February 23, 2024
Feb 23 (Reuters) - New York Federal Reserve President John Williams sees the U.S. central bank on track to cut interest rates "later this year," despite stronger-than-expected inflation and labor market data in January, according to an interview with Axios.
"My overall view of the economy basically hasn't changed based on one month of data," Williams said in an interview, that was conducted on Thursday and published on Friday, noting that inflation's progress toward the Fed's 2% goal can be "a little bit bumpy," but that overall it and the economy more broadly are headed "in the right direction."
"At some point, I think it will be appropriate to pull back on restrictive monetary policy, likely later this year," Williams said, remarks that are in synch with those of other Fed policymakers who have been sounding somewhat cautious lately about starting to cut rates without more confidence on inflation's downward trajectory.
As vice chair of the Fed's rate-setting Federal Open Market Committee, Williams is an influential voice at the U.S. central bank, which has held its benchmark overnight interest rate steady in the 5.25%-5.50% range since last July.
He did not give any sense of his preferred timing for the start of rate cuts, nor of exactly what would trigger them, apart from an overall assessment that inflation is indeed headed sustainably toward the 2% target.
"It's really about reading that data and looking for consistent signs that inflation is not only coming down, but is moving towards that 2% longer-run goal," he told Axios.
"I don't think there's any formula, or one indicator, or something that will tell you that."
"It's really looking at all the information together, including these signs in the labor market and others and extracting the signal."
While a material significant change in the economic outlook could require a rethink, he said, "rate hikes are not my base case," Axios cited him as saying.
BALANCE SHEET
Fed policymakers are expected to start in-depth discussions next month about slowing the central bank's ongoing reductions to its $7.63 trillion balance sheet.
The goal, Williams said, "is to make sure that we get a nice, smooth process of continuing to reduce the balance sheet down to the ultimate level that we want to get to and allowing us to monitor and analyze and understand how that reduction in the balance sheet is meeting that test that we set out for ultimately stopping."
In other words, he said, slowing the balance sheet reductions will give the Fed time to assess where and when it ought to stop altogether, and help it avoid the kind of market disruptions that occurred when it was trimming its balance sheet in September 2019.
Reporting by Ann Saphir; Editing by Paul Simao
https://www.reuters.com/markets/us/feds ... 024-02-23/
Re: THE FEDERAL RESERVE
REUTERS
"Fed's Bowman says she will stay 'cautious' on monetary policy"
Reuters
February 27, 2024
Feb 27 (Reuters) - Federal Reserve Governor Michelle Bowman on Tuesday signaled she is in no rush to cut U.S. interest rates, particularly given upside risks to inflation that could stall progress or even cause price pressures to resurge.
"My baseline outlook continues to be that inflation will decline further with the policy rate held steady," Bowman said in remarks prepared for delivery to a Florida Bankers Association leadership luncheon in Miami.
"I will remain cautious in my approach to considering future changes in the stance of policy."
Bowman supported the Fed's decision last month to hold its benchmark overnight interest rate in the current 5.25%-5.50% range, and on Tuesday said she feels the U.S. central bank's policy stance is "restrictive and appears to be appropriately calibrated to reduce inflation pressures."
She also repeated her view that if data continue to show inflation moving sustainably toward the Fed's 2% goal, it will "eventually" become appropriate to reduce the policy rate to keep it from becoming overly restrictive.
But unexpectedly strong readings on inflation in January "suggest slower progress" towards the 2% goal, Bowman said.
Consumer spending and economic activity have been strong and the labor market remains tight, she added.
Loosening financial conditions and additional fiscal stimulus could add to demand and stall progress on inflation, Bowman said, while geopolitical risks also could add to price pressures.
"Reducing our policy rate too soon could result in requiring further future policy rate increases to return inflation to 2 percent in the longer run," Bowman said, adding that she remains willing to increase the policy rate should it be needed.
Reporting by Ann Saphir; Editing by Paul Simao
https://www.reuters.com/markets/us/feds ... 2024-02-27
"Fed's Bowman says she will stay 'cautious' on monetary policy"
Reuters
February 27, 2024
Feb 27 (Reuters) - Federal Reserve Governor Michelle Bowman on Tuesday signaled she is in no rush to cut U.S. interest rates, particularly given upside risks to inflation that could stall progress or even cause price pressures to resurge.
"My baseline outlook continues to be that inflation will decline further with the policy rate held steady," Bowman said in remarks prepared for delivery to a Florida Bankers Association leadership luncheon in Miami.
"I will remain cautious in my approach to considering future changes in the stance of policy."
Bowman supported the Fed's decision last month to hold its benchmark overnight interest rate in the current 5.25%-5.50% range, and on Tuesday said she feels the U.S. central bank's policy stance is "restrictive and appears to be appropriately calibrated to reduce inflation pressures."
She also repeated her view that if data continue to show inflation moving sustainably toward the Fed's 2% goal, it will "eventually" become appropriate to reduce the policy rate to keep it from becoming overly restrictive.
But unexpectedly strong readings on inflation in January "suggest slower progress" towards the 2% goal, Bowman said.
Consumer spending and economic activity have been strong and the labor market remains tight, she added.
Loosening financial conditions and additional fiscal stimulus could add to demand and stall progress on inflation, Bowman said, while geopolitical risks also could add to price pressures.
"Reducing our policy rate too soon could result in requiring further future policy rate increases to return inflation to 2 percent in the longer run," Bowman said, adding that she remains willing to increase the policy rate should it be needed.
Reporting by Ann Saphir; Editing by Paul Simao
https://www.reuters.com/markets/us/feds ... 2024-02-27
Re: THE FEDERAL RESERVE
REUTERS
"Fed's Schmid: No need to 'preemptively' cut rates"
By Ann Saphir
February 26, 2024
Feb 26 (Reuters) - Kansas City Federal Reserve Bank President Jeffrey Schmid on Monday used a debut speech on policy to signal that he remains focused on the threat of high inflation and is in no rush to cut interest rates.
"With inflation running above target, labor markets tight and demand showing considerable momentum, my own view is that there is no need to preemptively adjust the stance of policy," Schmid said in his first extensive public remarks since he began the job last August.
"Instead, I believe that the best course of action is to be patient, continue to watch how the economy responds to the policy tightening that has occurred, and wait for convincing evidence that the inflation fight has been won."
Schmid's approach suggests a hawkish outlook in sync with recent Kansas City Fed presidents; indeed, he told the Economic Club of Oklahoma that both Esther George and Thomas Hoenig are "dear friends."
His approach is also one that resonates at least for now with the message of other Fed policymakers in recent weeks signaling they want to keep the policy rate in its current 5.25%-5.5% range until they have greater confidence that inflation is headed to the Fed's 2% goal.
Shipping disruptions in the Red Sea could put renewed upward pressure on goods prices, Schmid said, and hotter-than-expected consumer price inflation in January, especially for services, argues for "caution" on expectations for further disinflation.
"A further moderation in demand could be needed to tame price and wage pressures," he said.
Schmid also signaled hawkishness with regards to the Fed's balance sheet.
He said he is in "no hurry" to halt the ongoing reduction in the size of the balance sheet, and does not favor an "overly cautious approach" on the runoff.
Some Fed policymakers have argued that the time may soon come to slow those reductions to give time for the Fed to assess how far it can shrink its portfolio without roiling markets.
"Some interest-rate volatility should be tolerated as we continue to shrink our balance sheet," Schmid said.
Shrinking the balance sheet and reducing the Fed's footprint in financial markets should be a priority, he added.
In addition, Schmid said, banks should treat the Fed's discount window, the U.S. central bank's facility for extending emergency loans, as part of their "strategic stack" for funding rather than just in times of crisis.
Reporting by Ann Saphir; Editing by Leslie Adler
https://www.reuters.com/markets/us/feds ... 024-02-27/
"Fed's Schmid: No need to 'preemptively' cut rates"
By Ann Saphir
February 26, 2024
Feb 26 (Reuters) - Kansas City Federal Reserve Bank President Jeffrey Schmid on Monday used a debut speech on policy to signal that he remains focused on the threat of high inflation and is in no rush to cut interest rates.
"With inflation running above target, labor markets tight and demand showing considerable momentum, my own view is that there is no need to preemptively adjust the stance of policy," Schmid said in his first extensive public remarks since he began the job last August.
"Instead, I believe that the best course of action is to be patient, continue to watch how the economy responds to the policy tightening that has occurred, and wait for convincing evidence that the inflation fight has been won."
Schmid's approach suggests a hawkish outlook in sync with recent Kansas City Fed presidents; indeed, he told the Economic Club of Oklahoma that both Esther George and Thomas Hoenig are "dear friends."
His approach is also one that resonates at least for now with the message of other Fed policymakers in recent weeks signaling they want to keep the policy rate in its current 5.25%-5.5% range until they have greater confidence that inflation is headed to the Fed's 2% goal.
Shipping disruptions in the Red Sea could put renewed upward pressure on goods prices, Schmid said, and hotter-than-expected consumer price inflation in January, especially for services, argues for "caution" on expectations for further disinflation.
"A further moderation in demand could be needed to tame price and wage pressures," he said.
Schmid also signaled hawkishness with regards to the Fed's balance sheet.
He said he is in "no hurry" to halt the ongoing reduction in the size of the balance sheet, and does not favor an "overly cautious approach" on the runoff.
Some Fed policymakers have argued that the time may soon come to slow those reductions to give time for the Fed to assess how far it can shrink its portfolio without roiling markets.
"Some interest-rate volatility should be tolerated as we continue to shrink our balance sheet," Schmid said.
Shrinking the balance sheet and reducing the Fed's footprint in financial markets should be a priority, he added.
In addition, Schmid said, banks should treat the Fed's discount window, the U.S. central bank's facility for extending emergency loans, as part of their "strategic stack" for funding rather than just in times of crisis.
Reporting by Ann Saphir; Editing by Leslie Adler
https://www.reuters.com/markets/us/feds ... 024-02-27/
Re: THE FEDERAL RESERVE
REUTERS
"Fed's Williams sees more work needed to get inflation back to 2%"
By Michael S. Derby
February 28, 2024
GARDEN CITY, N.Y., Feb 28 (Reuters) - New York Federal Reserve President John Williams said on Wednesday that even as there's still some distance to cover in achieving the U.S. central bank's 2% inflation target, the door is opening to interest rate cuts this year depending on how the data come in.
"While the economy has come a long way toward achieving better balance and reaching our 2% inflation goal, we are not there yet," Williams said, adding, "I am committed to fully restoring price stability in the context of a strong economy and labor market."
Williams was speaking to a gathering of the Long Island Association in Garden City, New York.
He did not offer any firm guidance on what's next for the U.S. central bank's monetary policy stance, although he noted the start of the process of lowering rates could come "later this year."
Williams also said the Fed "has the time" to take in data before making the call to lower borrowing costs, and noted "as we navigate the remainder of this journey, I will be focused on the data, the economic outlook, and the risks, in evaluating the appropriate path for monetary policy that best achieves our goals."
Fed officials at their policy meeting in December penciled in three rate cuts to the benchmark overnight interest rate, which is currently set in the 5.25%-5.50% range.
Recent inflation data has caused financial markets to push back the timing of the first rate cut.
Williams told reporters after his speech that the economy looks much like it did in December when officials penciled in the rate cuts.
He said "my view is that something like the three-rate-cuts-this-year projection from December is a reasonable kind of starting point" for the Fed to debate, adding "we're in a good position" when it comes to using monetary policy to achieve the central bank's goals.
The Fed is set to update key forecasts on the economy and monetary policy at its March 19-20 policy meeting.
In his speech, Williams said inflation has "declined significantly" over the past year and a half amid "broad-based" retreats in the components that make up inflation measurements.
But he added, "we still have a ways to go on the journey to sustained 2% inflation."
Williams said he sees inflation ebbing to between 2% to 2.25% this year and to 2% next year.
Overall inflation pressures measured by the personal consumption expenditures price index were up by 2.6% in December from the same month a year earlier.
Noting the unexpected strength of recent consumer level inflation data, Williams said there are likely to be "bumps along the way" back to 2%.
Williams also said he expects economic growth to slow this year to around 1.5% and for the current 3.7% unemployment rate to rise to around 4%.
He said that while risks to the outlook remain, the economy has nevertheless become more balanced.
Reporting by Michael S. Derby; Editing by Chizu Nomiyama and Paul Simao
https://www.reuters.com/markets/us/feds ... 024-02-28/
"Fed's Williams sees more work needed to get inflation back to 2%"
By Michael S. Derby
February 28, 2024
GARDEN CITY, N.Y., Feb 28 (Reuters) - New York Federal Reserve President John Williams said on Wednesday that even as there's still some distance to cover in achieving the U.S. central bank's 2% inflation target, the door is opening to interest rate cuts this year depending on how the data come in.
"While the economy has come a long way toward achieving better balance and reaching our 2% inflation goal, we are not there yet," Williams said, adding, "I am committed to fully restoring price stability in the context of a strong economy and labor market."
Williams was speaking to a gathering of the Long Island Association in Garden City, New York.
He did not offer any firm guidance on what's next for the U.S. central bank's monetary policy stance, although he noted the start of the process of lowering rates could come "later this year."
Williams also said the Fed "has the time" to take in data before making the call to lower borrowing costs, and noted "as we navigate the remainder of this journey, I will be focused on the data, the economic outlook, and the risks, in evaluating the appropriate path for monetary policy that best achieves our goals."
Fed officials at their policy meeting in December penciled in three rate cuts to the benchmark overnight interest rate, which is currently set in the 5.25%-5.50% range.
Recent inflation data has caused financial markets to push back the timing of the first rate cut.
Williams told reporters after his speech that the economy looks much like it did in December when officials penciled in the rate cuts.
He said "my view is that something like the three-rate-cuts-this-year projection from December is a reasonable kind of starting point" for the Fed to debate, adding "we're in a good position" when it comes to using monetary policy to achieve the central bank's goals.
The Fed is set to update key forecasts on the economy and monetary policy at its March 19-20 policy meeting.
In his speech, Williams said inflation has "declined significantly" over the past year and a half amid "broad-based" retreats in the components that make up inflation measurements.
But he added, "we still have a ways to go on the journey to sustained 2% inflation."
Williams said he sees inflation ebbing to between 2% to 2.25% this year and to 2% next year.
Overall inflation pressures measured by the personal consumption expenditures price index were up by 2.6% in December from the same month a year earlier.
Noting the unexpected strength of recent consumer level inflation data, Williams said there are likely to be "bumps along the way" back to 2%.
Williams also said he expects economic growth to slow this year to around 1.5% and for the current 3.7% unemployment rate to rise to around 4%.
He said that while risks to the outlook remain, the economy has nevertheless become more balanced.
Reporting by Michael S. Derby; Editing by Chizu Nomiyama and Paul Simao
https://www.reuters.com/markets/us/feds ... 024-02-28/
Re: THE FEDERAL RESERVE
REUTERS
"Fed's Collins repeats it is 'likely' rate cuts will begin this year"
Reuters
February 28, 2024
Feb 28 (Reuters) - The Federal Reserve will likely need to start cutting its benchmark overnight lending rate later this year, Boston Fed Bank President Susan Collins said on Wednesday.
"I believe it will likely become appropriate to begin easing policy later this year," Collins said in prepared remarks to an event at Dartmouth College, in Hanover, New Hampshire, echoing similar sentiments she made earlier this month.
"When this happens, a methodical, forward-looking approach to reducing rates gradually should provide the necessary flexibility to manage risks, while promoting stable prices and maximum employment."
The U.S. central bank has kept interest rates unchanged since last July in the 5.25%-5.50% range after a steep hiking cycle in order to quash inflation that had risen to its highest level in 40 years.
Fed policymakers have forecast three rate cuts this year, but have made plain that they are waiting for more confidence in falling inflation before easing can begin.
Collins said that recent hotter-than-expected employment and price increase readings meant that the Fed's path to returning inflation to its 2% target rate "will likely continue to be bumpy."
"It will be important to see sustained, broadening signs of progress toward the Fed's dual mandate goals – while recognizing that progress may be uneven," Collins said, although she added, "expecting all data to speak uniformly is too high a bar."
Collins said she was looking for continued declines in housing inflation and non-shelter services inflation, as well as more evidence the pace of wage gains is not adding to inflationary pressures.
Reporting by Lindsay Dunsmuir; Editing by Andrea Ricci
https://www.reuters.com/markets/rates-b ... 024-02-28/
"Fed's Collins repeats it is 'likely' rate cuts will begin this year"
Reuters
February 28, 2024
Feb 28 (Reuters) - The Federal Reserve will likely need to start cutting its benchmark overnight lending rate later this year, Boston Fed Bank President Susan Collins said on Wednesday.
"I believe it will likely become appropriate to begin easing policy later this year," Collins said in prepared remarks to an event at Dartmouth College, in Hanover, New Hampshire, echoing similar sentiments she made earlier this month.
"When this happens, a methodical, forward-looking approach to reducing rates gradually should provide the necessary flexibility to manage risks, while promoting stable prices and maximum employment."
The U.S. central bank has kept interest rates unchanged since last July in the 5.25%-5.50% range after a steep hiking cycle in order to quash inflation that had risen to its highest level in 40 years.
Fed policymakers have forecast three rate cuts this year, but have made plain that they are waiting for more confidence in falling inflation before easing can begin.
Collins said that recent hotter-than-expected employment and price increase readings meant that the Fed's path to returning inflation to its 2% target rate "will likely continue to be bumpy."
"It will be important to see sustained, broadening signs of progress toward the Fed's dual mandate goals – while recognizing that progress may be uneven," Collins said, although she added, "expecting all data to speak uniformly is too high a bar."
Collins said she was looking for continued declines in housing inflation and non-shelter services inflation, as well as more evidence the pace of wage gains is not adding to inflationary pressures.
Reporting by Lindsay Dunsmuir; Editing by Andrea Ricci
https://www.reuters.com/markets/rates-b ... 024-02-28/
Re: THE FEDERAL RESERVE
REUTERS
"Fed's Mester said banks' Discount Window access needs tweaks"
By Michael S. Derby
February 29, 2024
NEW YORK, Feb 29 (Reuters) - Federal Reserve Bank of Cleveland President Loretta Mester said Thursday she favors taking more concrete steps to make sure banks are ready to use a central bank liquidity facility aimed at helping the financial institutions in times of stress.
Speaking at an event at Columbia University, Mester, as part of remarks that looked broadly at the financial system and how regulators can bolster its safety, flagged some potential reforms of the Discount Window, the Fed’s long-standing tool to provide banks fast liquidity.
Mester said while the Fed has been encouraging banks to make sure they have needed liquidity agreements and collateral in place to access the Discount Window, and have tested the ability to tap the facility, doing all of this should potentially be required.
“Testing at this time is not mandatory, but I support requiring such testing as part of sound liquidity management,” Mester said in her prepared remarks.
“It is also worth considering requiring banks to pre-position collateral at the window in proportion to their short-term runnable funding, including uninsured deposits, so they would be ready to borrow at the discount window should that funding start to run.”
Mester’s prepared remarks did not address monetary policy or the economic outlook.
The Discount Window has long faced challenges and many banks shy away from using it because they fear tapping it will signal to other financial institutions they are in trouble.
The Fed has tried to overcome this stigma but has struggled to do so.
When banks ran into stress a year ago, the Fed augmented its ability to provide lifelines to banks with a new lending tool called the Bank Term Funding Program.
The facility, which shuts down in March, has been heavily used, while the Discount Window has, outside of a burst of lending, been largely on the sidelines.
Mester also said possible changes that could curtail how banks can borrow from the Federal Home Loan Banks could curtail a key liquidity source and drive banks toward more risky funding sources, which in turn increases the risk of liquidity troubles in times of stress.
"This increases the need for banks to be prepared to use the discount window as a source of contingency funding," the official said.
Reporting by Michael S. Derby;
www.reuters.com/markets/us/feds-mester- ... 024-02-29/
"Fed's Mester said banks' Discount Window access needs tweaks"
By Michael S. Derby
February 29, 2024
NEW YORK, Feb 29 (Reuters) - Federal Reserve Bank of Cleveland President Loretta Mester said Thursday she favors taking more concrete steps to make sure banks are ready to use a central bank liquidity facility aimed at helping the financial institutions in times of stress.
Speaking at an event at Columbia University, Mester, as part of remarks that looked broadly at the financial system and how regulators can bolster its safety, flagged some potential reforms of the Discount Window, the Fed’s long-standing tool to provide banks fast liquidity.
Mester said while the Fed has been encouraging banks to make sure they have needed liquidity agreements and collateral in place to access the Discount Window, and have tested the ability to tap the facility, doing all of this should potentially be required.
“Testing at this time is not mandatory, but I support requiring such testing as part of sound liquidity management,” Mester said in her prepared remarks.
“It is also worth considering requiring banks to pre-position collateral at the window in proportion to their short-term runnable funding, including uninsured deposits, so they would be ready to borrow at the discount window should that funding start to run.”
Mester’s prepared remarks did not address monetary policy or the economic outlook.
The Discount Window has long faced challenges and many banks shy away from using it because they fear tapping it will signal to other financial institutions they are in trouble.
The Fed has tried to overcome this stigma but has struggled to do so.
When banks ran into stress a year ago, the Fed augmented its ability to provide lifelines to banks with a new lending tool called the Bank Term Funding Program.
The facility, which shuts down in March, has been heavily used, while the Discount Window has, outside of a burst of lending, been largely on the sidelines.
Mester also said possible changes that could curtail how banks can borrow from the Federal Home Loan Banks could curtail a key liquidity source and drive banks toward more risky funding sources, which in turn increases the risk of liquidity troubles in times of stress.
"This increases the need for banks to be prepared to use the discount window as a source of contingency funding," the official said.
Reporting by Michael S. Derby;
www.reuters.com/markets/us/feds-mester- ... 024-02-29/