Cleveland Federal Reserve President Loretta Mester stated that she still anticipates interest rate cuts this year but excluded the possibility of it happening at the next policy meeting in May. She mentioned that the long-term trajectory is higher than previously thought by policymakers. San Francisco Fed President Mary Daly also expects cuts this year but only once there is more concrete evidence that inflation has been contained.
Mester recognized the progress made on inflation while the economy continued to grow. She hinted that rate cuts are likely if this trend persists, although she did not provide specifics on timing or magnitude. Mester emphasized the need for more data to increase her confidence in the downward trajectory of inflation.
She mentioned that additional inflation data will indicate whether unexpected data points this year were temporary anomalies or a signal that inflation progress might be stalling. Mester clarified that she will not have enough information to make a determination by the time of the next FOMC meeting.
These statements were made following the recent decision by the Federal Open Market Committee to keep the key overnight borrowing rate unchanged. Mester’s comments suggest ruling out a rate cut at the upcoming FOMC meeting, which is also reflected in market expectations. Futures traders anticipate the Fed to begin easing in June and cut rates by three-quarters of a percentage point by the end of the year.
Both Mester and Daly believe that three rate reductions this year are reasonable but not guaranteed. They emphasized the importance of economic developments in shaping policy decisions. Mester also mentioned that the long-term federal funds rate might be higher than the expected 2.5%, reflecting a potential inclination towards a higher rate by certain members.
Overall, the Fed aims to calibrate policy in response to economic conditions to avoid the need for drastic actions.
Cleveland Federal Reserve President Loretta Mester expects interest rate cuts this year, but ruled out a cut at the next policy meeting in May. She emphasized the need for more data on inflation before making a decision on rate cuts. San Francisco Fed President Mary Daly also expects cuts this year but is waiting for more evidence of subdued inflation. Both officials indicated that the long-run path for interest rates may be higher than previously expected. Futures traders anticipate rate cuts starting in June and continuing throughout the year. Mester and Daly both emphasized that their projections are not guarantees and will depend on economic data. Mester believes the long-run federal funds rate will be higher than the previous expectation of 2.5%, indicating a more hawkish stance among some policymakers.
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