Fed officials still expects rate cuts this year, but not anytime soon

Cleveland
Federal
Reserve
President
Loretta
Mester
said
Tuesday
she
still
expects
interest
rate
cuts
this
year,
but
ruled
out
the
next
policy
meeting
in
May.

Mester
also
indicated
that
the
long-run
path
is
higher
than
policymakers
had
previously
thought.
Her
fellow
policymaker,
San
Francisco
Fed
President
Mary
Daly,
also
said
Tuesday
she
expects
cuts
this
year
but
not
until
there’s
more
convincing
evidence
that
inflation
has
been
subdued.

The
central
bank
official
noted
progress
made
on
inflation
while
the
economy
has
continued
to
grow.
Should
that
continue,
rate
cuts
are
likely,
though
she
didn’t
offer
any
guidance
on
timing
or
extent.

“I
continue
to
think
that
the
most
likely
scenario
is
that
inflation
will
continue
on
its
downward
trajectory
to
2
percent
over
time.
But
I
need
to
see
more
data
to
raise
my
confidence,”
Mester
said
in
prepared
remarks
for
a
speech
in
Cleveland.

Additional
inflation
readings
will
provide
clues
as
to
whether
some
higher-than-expected
data
points
this
year
either
were
temporary
blips
or
a
sign
that
the
progress
on
inflation “is
stalling
out,”
she
added.

“I
do
not
expect
I
will
have
enough
information
by
the
time
of
the
FOMC’s
next
meeting
to
make
that
determination,”
Mester
said.

Those
remarks
come
nearly
two
weeks
after
the
rate-setting
Federal
Open
Market
Committee
again
voted
to

hold
its
key
overnight
borrowing
rate
in
a
range
between
5.25%-5.5%,
where
it
has
been
since
July
2023.
The
post-meeting
statement
echoed
Mester’s
remarks
that
the
committee
needs
to
see
more
evidence
that
inflation
is
progressing
toward
the
2%
target
before
it
will
start
reducing
rates.

Mester’s
comments
would
seem
to
rule
out
a
cut
at
the
April
30-May
1
FOMC
meeting,
a
sentiment
also
reflected
in
market
pricing.
Mester
is
a
voting
member
of
the
FOMC
but
will
leave
in
June
after
having
served
the
10-year
limit.

Futures
traders
expect
the
Fed
to
start
easing
in
June
and
to
cut
by
three-quarters
of
a
percentage
point
by
the
end
of
the
year.

San
Francisco
Fed
President
Daly
said
that
three
reductions
this
year
is
a “very
reasonable
baseline”
though
she
said
nothing
is
guaranteed.
Daly
also
is
an
FOMC
voter
this
year.

“Three
rate
cuts
is
a
projection,
and
a
projection
is
not
a
promise,”
she
said,
later
adding, “We’re
getting
there,
but
it’s
not
going
to
be
tomorrow,
but
it’s
not
going
to
be
forever.”

While
looking
for
rate
cuts,
Mester
said
she
thinks
the
long-run
federal
funds
rate
will
be
higher
than
the
long-standing
expectation
of
2.5%.
Instead,
she
sees
the
so-called
neutral
or “r*”
rate
at
3%.
The
rate
is
considered
the
level
where
policy
is
neither
restrictive
nor
stimulative.
After
the
March
meeting,
the
long-rate
rate
projection
moved
up
to
2.6%,
indicating
there
are
other
members
leaning
higher.

Mester
noted
the
rate
was
very
low
when
the
Covid
pandemic
hit
and
gave
the
Fed
little
wiggle
room
to
boost
the
economy.

“At
this
point,
we
are
seeking
to
calibrate
our
policy
well
to
economic
developments
so
we
can
avoid
having
to
act
in
an
aggressive
fashion,”
she
said.