"Fed Cautious Against Early Interest Rate Cuts... Indicators Remain Robust"

Yeon Eun President "Interest Rate Cut Later Than Expected"
Fed No. 2 "Cut Appropriate in Latter Half of This Year"

Voices cautioning against early rate cut expectations are pouring in from U.S. Federal Reserve (Fed) officials.

[Image source=Reuters Yonhap News]

Patrick Harker, President of the Philadelphia Federal Reserve Bank, said in remarks at an event in Delaware on the 22nd (local time), "I see the possibility of a rate cut this year," but added, "I want to caution those who want a cut right now." While agreeing with the policy of a cut within the year, he explained that it would not be as early as the market expects.

President Harker expressed concerns that rushing a rate cut could cause inflation to rebound. He likened the current situation to "the last mile of a marathon to achieve the 2% inflation target," emphasizing, "The biggest economic risk is lowering rates too early, causing inflation to surge and undoing the efforts of the past two years right before our eyes."

Furthermore, while welcoming recent progress on inflation, he reiterated, "Such progress is sometimes rough and uneven, so more evidence needs to be confirmed." Harker does not have a voting right at this year's Federal Open Market Committee (FOMC). However, during the discussion after his speech, he did not completely rule out the possibility of a rate cut in May.

Philip Jefferson, Vice Chair of the Fed and considered the Fed's second-in-command, also warned against excessively rapid rate cuts. In a speech at the Peterson Institute for International Economics in Washington, D.C., he said, "If the economy moves broadly along the expected path, it would be appropriate to start cuts later this year." Jefferson estimated that the January Personal Consumption Expenditures (PCE) price index rose 2.4% year-over-year, slowing from the previous month's increase of 2.6%. The January PCE, the Fed's preferred inflation gauge, is scheduled to be released on the 29th.

On the same day, Fed Governor Lisa Cook also stated, "Before starting rate cuts, I want to have stronger confidence that inflation is converging to 2%," indicating that it is not yet time to cut rates. Earlier, the minutes of the January FOMC meeting released by the Fed on the 21st confirmed a cautious stance that the current rate of 5.25-5.5% should be maintained until a clear slowdown in inflation is confirmed.

The economic indicators released that day further reinforced the view that early rate cuts would not occur as much as the market expects. The U.S. Manufacturing Purchasing Managers' Index (PMI) for February, released by S&P Global, recorded 51.5, the highest in 17 years. This figure far exceeded both the previous month's 50.7 and the February expert forecast of 50.5. The weekly initial jobless claims released on the same day also showed 201,000 claims, the lowest level in five weeks, suggesting a robust labor market.

While early in the year the market widely expected a rate cut in March, the current consensus favors cuts in June or July. According to the Chicago Mercantile Exchange (CME) FedWatch, the federal funds futures market reflects over a 60% chance that the Fed will cut rates by at least 0.25 percentage points at the June FOMC meeting. The probability of rates remaining unchanged through July stands at about 16%.

This content was produced with the assistance of AI translation services.