Fed Emphasizes Caution, Adopts Wait-and-See Mode?..."Calls for Rate Cuts" Also Raised

Since the Federal Reserve (Fed) officials in the United States hinted at a possible rate cut later this year through the release of the 'dot plot,' they have been expressing cautious views, emphasizing the need for patience. They appear to have entered a kind of 'hawkish wait-and-see mode,' stating that it is difficult to make judgments based on just one or two indicators. However, encouraging figures from key indicators such as retail sales have also been confirmed, leading to voices advocating for a rate cut in the second half of the year.

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Fed Officials Cautious: "More Evidence Needed"

According to investment media Barron's and others, Fed officials who spoke publicly on the 18th (local time) showed a more watchful approach than in the past, excluding strong assumptions about inflation or interest rate forecasts for this year. This signals that they are not in a hurry to cut rates amid ongoing concerns about a rebound in inflation.

John Williams, President of the New York Federal Reserve Bank and the third-ranking Fed official, appeared on Fox Business that day and said, "The situation is moving in the right direction," but emphasized, "Our decisions will depend on the data." He did not specify the timing of any rate cuts, stating, "Monetary policy decisions will be based on economic conditions and inflation indicators."

Lorie Logan, President of the Dallas Fed, also stressed a cautious approach at an event held in Austin, Texas, saying, "We need to see several months of data to be confident that we are moving toward the 2% price stability target." She pointed out that "from a monetary policy perspective, we are in a flexible position to watch the data and be patient," while noting ongoing concerns about a rebound in inflation. Thomas Barkin, President of the Richmond Fed, said, "We are clearly behind inflation," emphasizing that to confirm inflation is slowing, persistence and an expanding trend must be verified.

On the same day, Susan Collins, President of the Boston Fed, welcomed recent inflation data in an interview with Yahoo Finance but cautioned, "Because of high volatility, it is important not to overreact." She also stressed, "Now is a time for patience." Earlier, Collins had expected two rate cuts this year, but in this interview, she confirmed, "My view on how much easing (rate cuts) is appropriate has diminished."

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"Delay of Several Quarters Possible" vs. "Rate Cut Needed in Second Half"

The most hawkish among the officials who spoke that day was Alberto Musalem, President of the St. Louis Fed, who took office earlier this year. He said, "Before being confident that a cut is appropriate, we need to look at inflation slowing, demand easing, and supply expansion," adding, "This will take several months, and it is likely to take several quarters before results are seen." This suggests that U.S. rate cuts could be delayed further.

In particular, Musalem also pointed out that if the inflation easing trend stalls or reverses, additional rate hikes might be necessary. Bloomberg News analyzed, "Although Musalem did not specify his rate outlook, his speech suggests he is one of the officials expecting either one or no rate cuts this year."

Ostan Goolsby, President of the Chicago Fed, also stated, "Inflation has clearly slowed compared to its peak, but the unemployment rate is still only 4%," and argued, "If more pain is needed to reach 2%, then that must be done." This statement is also interpreted as leaving the door open for further rate hikes.

Earlier, the Fed raised its year-end rate forecast from 4.6% to 5.1% through the dot plot update at the June Federal Open Market Committee (FOMC) meeting. This suggests that the current rate of 5.25?5.5% could be cut once by the end of the year, a retreat from the initial forecast of three cuts.

In contrast, Adriana Kugler’s remarks released the same day were considered the most dovish (favoring monetary easing). Kugler, a director at the Peterson Institute for International Economics (PIIE), said, "There is much to be done," but added, "If economic conditions develop as expected, it would be appropriate to cut rates at some point in the second half of this year." She also evaluated recent inflation data as encouraging.

Barron's reported, "This discord reflects the Fed’s data-dependent situation amid unclear economic indicators," adding, "This situation is unlikely to change in the coming months. The Fed’s game in 2024 will be 'wait and see.'" According to the Chicago Mercantile Exchange (CME) FedWatch, the federal funds futures market currently reflects about a 70% chance that the Fed will cut rates by at least 0.25 percentage points at the September FOMC meeting.

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