Federal Reserve’s Mester Likely to Adjust Rate Cut Projections

3 hr 17 min ago

Due to stalled progress on inflation this year,  Cleveland Federal Reserve President Loretta Mester said she was likely to reduce her projections for interest rate cuts in 2024 when the Federal Open Market Committee next meets.

Mester told Bloomberg Television she wasn’t likely to stick with her earlier projections of three interest rate cuts in 2024, echoing other Fed officials who have recently downplayed the timing for rate adjustments this year.

“Broadly speaking, inflation is going to come down, I just don’t think it’s going to come down quickly,” Mester said. 

In what will be her last meeting before retiring her position, Mester and other members of the Federal Open Market Committee will submit interest rate projections at the upcoming June meeting, resulting in the “dot plot” graph followed closely by market watchers. Mester didn’t reveal how many rate cuts she would forecast at the June 11 meeting. 

Mester said she believed interest rates were sufficiently “restrictive” at their current levels and said the progress shown on inflation in the most recent Consumer Price Index (CPI) inflation tracker was “welcome news.”

“I think it’s too soon to tell what path inflation is on,” she said. 

Though it wasn’t her “base case,” she said that if progress on inflation stalls, or even reverses, then the Federal Reserve was “well positioned” to raise rates if needed. Like other officials, Mester said rates needed to be held at their current levels while the Fed continues to evaluate both inflation data and unemployment levels

“I think monetary policy is well positioned for risk on either side,” she said.

-Terry Lane

Fed’s Jefferson Sees Continued Housing Inflation

3 hr 23 min ago

Interest rates are weighing on the housing market, but their full impact still may not be felt, said Federal Reserve Vice Chair Philip Jefferson Monday.

There is a time lag that occurs for rate hikes to show up in inflation measurements, Jefferson told the Mortgage Brokers Association. His remarks come as elevated borrowing costs have helped undercut demand for mortgages. 

“The large increase in market rents during the pandemic is still being passed through to existing rents and may keep housing services inflation elevated for a while longer,” Jefferson said.

In his remarks, Jefferson echoed other Federal Reserve officials who said more time was needed to evaluate inflation data before the central bank could move to interest rates down from their current levels. 

However, he said progress was being made on inflation, noting data showed consumers’ long-term inflation expectations remained close to pre-pandemic levels. 

“That shows the American people believe that we will make good on our commitment to bring inflation fully back to our objective,” Jefferson said. 

-Terry Lane

Federal Reserve’s Bostic Sees Inflation Fight Stretching into 2025

7 hr 27 min ago

The public should be prepared for higher interest rates in 2025 as the fight against inflation will likely stretch into next year, Atlanta Federal Reserve Bank President Raphael Bostic said in a Bloomberg TV interview today.

“I think it will take quite a while for us to get all the way to 2%, but I do think we’ll get there,” Bostic said.

The Federal Reserve has set interest rates to decades-high levels in order to slow the annual rate of price changes to its target level of 2%.

Business leaders have told Bostic that high interest rates were working to slow down economic growth, which is what gave him the confidence to believe that inflation would continue to fall over time, he said. However, the public should be prepared for rates higher than the near-zero interest rate environment of the pre-pandemic.

“I do think our new steady state is going to be higher than what people have known over the last decade,” Bostic said. 

Higher interest rates are also working to slow down a labor market that has grown robustly over the past year and helped fuel growth in 2023 which powered the economy past forecasts of a recession. 

“Labor markets are weaker than they were, softer than they were 12 months ago, but they’re not soft,” Bostic said. 

-Terry Lane