"Option 3" VS "Option 1" Divided Over Interest Rate Cuts at US Fed

Goolsby "Uncertain but Aiming for 2% Inflation Target"
Bostic & Cook "Need Patience and Caution"

The U.S. Federal Reserve (Fed) is expected to cut interest rates this year, but opinions within the Fed differ on the pace. While some believe rates should be cut three times this year, others argue that given the significant inflation, the pace should be moderated to just one rate cut.

On the 25th (local time), Austin Goolsbee, President of the Chicago Federal Reserve Bank, said in an interview with Yahoo Finance, "The three rate cuts projected in the Fed's dot plot this year align with my view."

President Goolsbee stated, "Despite higher-than-expected inflation figures in January and February this year, the fundamental story of inflation decline has not changed," adding, "It is hard to believe that the previous seven months' figures were due to chance." He also added, "Although the situation is uncertain, it does not feel like the direction toward the target has fundamentally changed."

The U.S. core Consumer Price Index (CPI) inflation rate recorded 3.9% and 3.8% in January and February this year, respectively, showing high levels. Compared to last year's 5.5%, it has decreased, but it is still double the Fed's price stability target of 2%. However, the Personal Consumption Expenditures (PCE) index, which the Fed closely monitors and which has a lower weighting for housing costs than the CPI, rose 2.9% in December last year and 2.8% in January this year, showing progress.

President Goolsbee's opinion aligns with recent remarks by Fed Chair Jerome Powell. After maintaining the outlook for three rate cuts this year at the March Federal Open Market Committee (FOMC) regular meeting on the 20th, Chair Powell stated, "We continue to see good progress in lowering inflation."

Regarding why inflation is not stabilizing easily, President Goolsbee pointed to housing costs. He said, "Housing cost inflation needs to be brought down to pre-COVID-19 pandemic levels."

However, on the other side, there are voices advocating for only one rate cut this year. On the same day, Raphael Bostic, President of the Atlanta Federal Reserve Bank, reaffirmed his previous statement that only one rate cut should be made this year and mentioned the possibility of rate cuts in the second half of the year. President Bostic initially expected two rate cuts this year but revised his view to one cut on the 22nd.

President Bostic said, "I have a forecast for how the economy will progress, and if so, I think there is room to be patient." He added, "As long as the economy is strong, GDP is high, companies are hiring, and people have jobs, I will not rush to bring inflation down to 2%."

Fed Governor Lisa Cook expressed a cautious stance. She emphasized the need to approach rate cuts carefully to secure time to slow inflation.

Governor Cook said, "Employment and inflation targets are moving in a more balanced direction," but "nevertheless, it may take time to fully restore price stability, and a cautious approach to rate cuts is necessary."

She described the process of lowering inflation to the Fed's 2% target as "bumpy and uneven." Governor Cook stated, "By carefully approaching further policy adjustments, we can maintain a strong labor market while sustainably bringing inflation back to 2%. If monetary policy is eased too quickly or too much, there is a risk that inflation will remain stuck above the target."

Meanwhile, according to the Chicago Mercantile Exchange (CME) FedWatch as of the day, the probability that the Fed will cut the benchmark interest rate at the June FOMC meeting is 73.8%, while the probability of holding rates steady is 26.2%.

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