According to two US Federal Reserve members who joined the chorus of American central bankers, the members are downplaying the need to cut interest rates in the face of persistent inflation. One of them issued a warning, stating that should price pressures fail to further abate, the central bank may even decide to hike rates once more.

Federal Reserve Governor Michelle Bowman stated to the Shadow Open Market Committee in New York that “we are still not yet at the point where it is appropriate to lower the policy rate, and I continue to see a number of upside risks to inflation,” despite the fact that inflation has decreased significantly and will probably continue to trend back towards the 2% target.

According to her, the inflation potentialities could alter the picture for upcoming policy choices.

“While it is not my baseline outlook, I continue to see the risk that at a future meeting we may need to increase the policy rate further should progress on inflation stall or even reverse,” Bowman warned.

In the interim, the governor of the central bank stated that Fed policy is appropriate given the strength of the economy. She added that “it will eventually become appropriate to gradually lower the federal funds rate to prevent monetary policy from becoming overly restrictive” if inflation keeps declining to 2%.

Bowman’s hawkish stance on monetary policy was influenced by President Lorie Logan of the Federal Reserve Bank of Dallas, who made similar observations.

In a speech written in advance of a Duke University event, Logan stated, “I think it’s much too soon to think about cutting interest rates.” “I will need to see more of the uncertainty resolved about which economic path we’re on,” the speaker stated, before we can consider rate reductions.

Friday’s closing gains in U.S. stocks came from a solid jobs report that supported the idea that the economy is still doing well, even as it also hinted that the Federal Reserve would postpone lowering interest rates.

Logan was particularly concerned about inflation’s future given its erratic start to the year. According to her, “the key risk” is not so much an increase in inflation as it is stalling out at current levels.

Over the course of the previous week, Bowman and Logan became the most recent Fed officials to express alarm about the “bumps” the Fed was running into this year as it worked to bring inflation back to target.

Strong employment figures coupled with little movement on inflation over the past few months have made senior officials, including Chair Jerome Powell, more vocal in their requests to be “patient” when deciding when to reduce rates.

The two Fed officials gave a speech following the publication of extremely encouraging hiring data. With payrolls adding a better-than-expected 303,000 jobs in March and the unemployment rate dropping to 3.8% from 3.9% in February, the jobs data revealed a very healthy employment sector.

The robust hiring data supported the view that, with the economy in a strong position, the Federal Reserve can afford to maintain its current monetary policy settings, which have the federal funds rate between 5.25% and 5.5%, for some time in order to further reduce inflation without negatively impacting the economy as a whole.

Investors have been able to lower their expectations of rate cuts because to the direction Fed policymakers have taken and the evolution of economic data. The federal funds futures market indicates that traders are divided on the likelihood of a June easing and almost no probability of a cut at the Federal Open Market Committee meeting in May.

Fed policymakers maintained their expectation of three cuts this year at the FOMC meeting last month, albeit they did so with less vigour than they had at the end of the previous year. Economists stated the overall job data resisted the need to begin lowering interest rates.

Thomas Simons, an American economist with investment bank Jefferies, stated that “the Fed does not know what path the data is going to take,” which has muddled how much direction they are able to give concerning future policy choices. That being said, “the data released today will not encourage Fed officials to move closer to a rate cut anytime soon.”

Experts at TD Securities concurred. The strong jobs report “may reinforce the idea of patience among some Fed officials in terms of upcoming policy decisions,” the authors wrote in a letter to clients. “We continue to believe that consumer price inflation’s evolution will be the primary determinant in the near future, which heightens the anticipation for this week’s CPI report,” they continued.

The market will be closely observing the March consumer price index when it is released on Wednesday to see if the reasons that made the index stronger than anticipated at the beginning of the year are slowing down.

But Michael Feroli, Chief U.S. Economist at JP Morgan, wasn’t waiting for CPI to change his mind.

“(T)he apparent absence of any cracks developing on the (labor) demand side should lessen the urgency to ease policy, and we are pushing back our call for the first Fed cut from June to July,” he said.

(Adapted from NewsWav.com)

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