Two Fed Voters Indicate Openness to Three Rate Cuts This Year

(Bloomberg) — Two Federal Reserve officials who vote on policy in 2024 indicated an openness to three interest-rate cuts this year should inflation progress continue.

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San Francisco Fed President Mary Daly said Friday that’s a “reasonable baseline” expectation, and Atlanta’s Raphael Bostic said he could “for sure” see three cuts — rather than his current preference for two — should inflation data come in better.

While that was the median estimate of Fed policymakers in December, investors have only recently tempered their bets on as many as six or seven cuts this year. Officials have repeatedly urged there’s no rush to cut rates, especially given the backdrop of a strong labor market and economy.

“To finish the job will take fortitude,” Daly said at a conference hosted by the National Association for Business Economics. “We will need to resist the temptation to act quickly when patience is needed and be prepared to respond agilely as the economy evolves.”

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The San Francisco Fed chief highlighted two opposing risks officials need to take account of in setting policy: Slower progress in bringing down inflation, on the one hand, and a sudden sharp deterioration in the labor market, on the other.

The cautious approach by policymakers was validated with data out this week. The consumer price index rose by more than forecast in January across the board, and prices paid to US producers also climbed. As a result, some economists expect the Fed’s preferred gauge of underlying inflation to post the biggest increase since early last year.

“Price stability is within sight,” Daly said. “But there is more work to do.”

Bostic said in an interview on CNBC Friday that he supports beginning rate cuts at some point this summer, but he indicated more favorable inflation data could warrant an earlier start.

Read More: Fed’s Bostic Favors Starting Interest-Rate Cuts in Summer

“A year ago, six months ago, I was in the fourth quarter,” Bostic said. “So we’ve seen tremendous progress, and I’m hopeful that that continues. If that continues I’ll be willing to pull it forward even further.”

Separately on Friday, Richmond Fed President Thomas Barkin was more cautious with his remarks. He said the latest inflation figures underscore why policymakers want to see more data before cutting rates.

Even so, Daly said the latest inflation data “has not shaken my confidence we’re going in the right direction.”

“The data around turning points in the economy — whether that’s a turning point to expand rapidly or a turning point to slow to a more sustainable pace — they’re always bumpy,” she said.

Daly also discussed a variety of forces that might impede further progress in reducing inflation: Labor force growth and productivity may not continue to grow as strongly as they have, while consumer demand might fail to slow as expected.

On the other side, there’s a danger the labor market could falter.

“With employment growth as strong as it has been, this seems like a distant risk,” Daly said. “But given the speed at which labor market pivots historically occur, it’s a risk we must keep in mind.”

–With assistance from Nazmul Ahasan.

(Updates throughout with comments from Daly, Bostic and Barkin.)

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