During its March FOMC meeting, the Committee held its target rate range constant at 5.25%–5.5% and released a new Summary of Economic Projections (SEP), which reaffirmed that it expected to make three rate cuts in 2024. Not only did the projections change, but it appeared that more of the participants coalesced on the view that three rate cuts would be appropriate. (See “March 2024 FOMC, https://www.cumber.com/market-commentary/march-2024-fomc.) Nine of the participants thought three rate cuts would be appropriate while five thought two would be sufficient.
However, since that meeting, it appears that the bump in inflation in January and February and the strong labor market have caused participants to reassess their view of the path for policy. Interestingly, among the five bank presidents who are currently voting members, there now appears to be wide divergence of views. Both President Mester, who is viewed as being slightly on the hawkish side when it comes to inflation, and President Daly, who is viewed as being dovish, reaffirmed last week that they thought three rate cuts would still be appropriate. President Bostic took the opposite view and stated on April 3 that he now thought only one rate cut would be warranted, sometime in the fourth quarter of this year. Philadelphia Bank President Barkin stated that he was open to rate cuts but took a cautious stance, expressing concern about January and February’s inflation numbers; and he implied that the release of the March CPI would be important in conditioning his view on policy and when and whether cuts would be appropriate. New York Bank President Williams, in an interview last week, reaffirmed the current policy, but he said, "At some point, I think it will be appropriate to pull back on restrictive monetary policy, likely later this year. But it's really about reading that data and looking for consistent signs that inflation is not only coming down but is moving towards that 2% longer-run goal." Like the others, he was concerned about the inflation reports of January and February and the strength of the labor market.
A few of the nonvoting participants have also spoken out about the policy path going forward. At one end of the spectrum, President Kashkari, who indicated he had predicted only two rate cuts this year, has now questioned whether any cuts might be appropriate. If the incoming data shows inflation moving sideways, combined with continued strong job growth and strong consumer spending, then he suggested he would be comfortable waiting, with the belief that the current policy stance was appropriate. President Goolsbee, more in line with Presidents Mester and Daly, seemed comfortable with three cuts in 2024 but suggested that his view would be conditioned on what he saw happening in the housing market. He expressed concern about continued price pressures in housing services, including rents on new leases. He stated that it would be difficult to get inflation down without price moderation in the housing sector. President Barker was also cautious about starting rate cuts until further progress is seen on inflation. Last Friday, Dallas Fed President Logan also took the same cautious stance as Barker did, saying it was too soon to consider cutting rates.
As for the governors, Chairman Powell reaffirmed the current stance of policy and suggested that it may be appropriate to start cutting rates this year, but he was silent on when and by how much. In sharp contrast, Governor Waller, while being open to rate cuts, saw little need for a policy change without a couple more months of declining inflation, and he now saw the inflation risks as being mainly to the upside. Governor Bowman said last week that now is not the time to consider rate cuts and implied that more hikes might even be possible if progress on inflation falters. Governor Cook last week also took a cautious approach to rate hikes and, like President Goolsbee, emphasized the need for moderation in the real estate sector to help push inflation down.
So, what this compilation of views from both voting and nonvoting members of the FOMC suggests is that “now is not the time,” and more progress on inflation must be in hand before rate cuts are even on the table. While the group tended to reaffirm the current view on policy, it is clear that the timing of the first rate cut and even the number of cuts will depend critically not only on inflation but also on the underlying strength of the economy as a whole. The Committee is clearly committed to trying to engineer a soft landing while hitting its 2% inflation goal. It is also clear that there will be extreme political pressure on the Fed to cut rates as the November election approaches, but Chairman Powell was emphatically clear that the Committee will not bow to political pressure on rates. Only time will tell.
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