The Federal Reserve’s two top officials signalled the central bank could cut interest rates later this year as inflation shows signs of easing, but warned that no cuts were expected this month.
John Williams, president of the New York Federal Reserve Bank, He told the Wall Street Journal He said Tuesday that the cooling labor market, combined with inflation data from the past three months, suggests the economy is “getting closer to the deflationary trend that we’re looking for.”
“These are encouraging signs,” Williams said, adding that he would like to see more data to give him further confidence that inflation is moving sustainably toward his 2 percent objective.
Fed board member Christopher Waller told The Wall Street Journal on Wednesday that the central bank wants another month or two of positive inflation data before moving forward with rate cuts, perhaps as soon as September.
“The time is looming for us to lower interest rates,” Waller said Wednesday at an economic meeting in Kansas City.
Former Cleveland Federal Reserve Bank President Loretta Mester told The Associated Press on Wednesday that the central bank should cut interest rates by the end of the year if inflation remains subdued as she and other Fed officials expect.
“It looks like inflation is back on a downward trend,” Mester told The Associated Press. “That’s a very good thing. It’s exactly what we were hoping for.”
Mester added that the central bank “wants to see inflation fall sustainably to its 2 percent target.”
Last week, the federal government reported that consumer prices fell slightly from May to June, slowing inflation to 3% year-on-year from 3.3% in May.
So-called “core” prices, which exclude volatile energy and food prices and are often a better predictor of the direction of inflation, rose 3.3 percent from a year earlier, down from 3.4 percent in May.
Fed Chairman Jerome Powell stressed in remarks on Monday that the Fed doesn’t need to wait until inflation actually hits 2% in order to lower borrowing costs.
“Waiting for inflation to get down to 2 percent is probably too long of a wait,” Powell said, because it takes time for Fed policy to have an impact on the economy.
But Williams warned that even if the Fed starts to cut rates, they will still remain at levels that make borrowing costs quite expensive.
“The restrictive policy stance that we have in place is appropriate,” Williams told The Wall Street Journal.
“I think at some point we will have to make the decision to lower interest rates in a less restrictive manner rather than move away from a more restrictive policy stance.”
Last week, JPMorgan Chase CEO Jamie Dimon warned that inflation and interest rates could remain higher for longer than expected.
