Fed officials want to have more confidence in easing inflation before rate cut

ISTANBUL

Two officials of the US Federal Reserve said they want to have more confidence in softening inflation before considering to begin interest rate cuts this year.

"I would like to have greater confidence that inflation is converging to 2 percent before beginning to cut the policy rate," Governor Lisa D. Cook said Thursday during her speech at Princeton University's School of Public and International Affairs in New Jersey.

When the Federal Open Market Committee (FOMC) last raised its policy rate in July, the risk of inflation remaining above 3% for some time was "quite salient," she said. "Since then, inflation has fallen more quickly than anticipated, and the risk of persistently high inflation, though it has not disappeared, appears to have diminished."

"At some point, as we gain greater confidence that disinflation is ongoing and sustainable, that changing outlook will warrant a change in the policy rate," she added.

Fed Vice Chair Philip Jefferson said the Fed's "strong actions" have moved its policy rate into restrictive territory, while the restrictive stance of monetary policy is putting downward pressure on economic activity and inflation.

"If the economy evolves broadly as expected, it will likely be appropriate to begin dialing back our policy restraint later this year," he told Thursday at the Peterson Institute for International Economics in Washington, D.C.

Jefferson, however, said three risks can affect the economic outlook and the FOMC's forecast.

If consumer spending would be more resilient than expected, this could cause progress on inflation to stall; while employment could weaken as factors supporting economic growth fade, and the possibility of geopolitical risks to remain elevated with a widening of the conflict in the Middle East that could have greater effects on oil and global financial markets.

Both Jefferson and Cook have voting rights in the FOMC this year.

Philadelphia Fed President Patrick Harker, on the other hand, hinted that the Fed's first interest rate cut could come sooner than expected.

"While the policy interest rate is indeed 1 point higher, the inflation rate is down by a much greater amount," he told Thursday during his speech at the University of Delaware. "I do believe we may be near the point where we can adjust the policy rate downward."

Harker noted that he does not have a vote on the FOMC this year, but said "I still have a voice in our policy discussions and intend to use it."

"Just like last summer, when I was a voting member of the FOMC and I signaled my belief early that it was time to hold rates steady, I will signal my belief that we’re ready for a rate decrease when all the data — both the hard and the soft — give me that signal," he added.