May 21st Financial News
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2024-05-21Fed's Jefferson says it's too early to tell whether the recent slowdown in the disinflationary process will be long lasting; Fed's Mester says economic conditions don't support three rate cuts this year...
[Quick Facts]
1. Fed's Jefferson says it's too early to tell if the disinflation process will last.
2. Fed's Mester says economic conditions don't support three rate cuts.
3. Fed's Bostic expects only one rate cut this year.
4. Six reasons the Fed won't be cutting rates anytime soon.
[News Details]
Fed's Jefferson says it's too early to tell if the disinflation process will last
April data is encouraging, but it is too early to tell whether the recent slowdown in the disinflationary process will be long lasting, Federal Reserve Vice Chair Philip Jefferson said in a speech on May 20. Housing inflation has been a thorn in the Fed's side, and the price change in its main component rents will take long to pass through to PCE. This lag suggests that 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.
I am cautiously optimistic that we can continue our battle against inflation while permitting the economy to continue to grow and create more jobs, said Jefferson.
Fed's Mester says economic conditions don't support three rate cuts
I was on the record before saying I was at the median forecast which was three, Cleveland Fed President Loretta Mester said on Monday regarding rate cuts. For the developments I've seen in the economy right now, I would not think that that's still appropriate, Mester added.
Inflation risks have picked up since the first quarter. Policy is restrictive, but Fed officials need to wait for more evidence on the path of inflation before adjusting interest rates. Mester stressed she hasn't made up her mind about where her "dot" will land (referring to the dot plot in the June Summary of Economic Projections).
A rate hike is possible if needed, but it's not Mester's baseline scenario.
Fed's Bostic expects only one rate cut this year
Atlanta Fed President Raphael Bostic said on May 20 that the U.S. economy is slowing, albeit at a slow pace, and this should help inflation continue to gradually cool. We still have a long way to go on the issue of inflation, and my outlook is that inflation will continue to fall this year and into 2025. But prices will drop at a slower pace than many had expected.
Rather than focus on the number of cuts this year, the key question is when the Fed will be certain that inflation is clearly on a path to 2%. "I think it is going to take a while before we know that for sure," Bostic said.
Bostic didn't change his forecast for the Fed's interest rate policy (expecting one rate cut in the third quarter).
Six reasons the Fed won't be cutting rates anytime soon
Markets are now expecting a total of nearly 50 basis points rate cuts by the Fed this year, but they may be disappointed. The Bank of America listed six reasons why interest rates will not be cut in the short term: inflation was too high in the first quarter; a single month of economic data should not bring too much comfort, especially if the annualized inflation rate is still much higher than the Fed's target; the economy, including services spending, is still solid; the labor market remains tight; the supply tailwinds may be fading; and the U.S. election is approaching.
[Focus of the Day]
UTC+8 16:00 U.S. Treasury Secretary Yellen, ECB President Lagarde, and German Finance Minister Lindner Speak
UTC+8 20:30 Canada CPI (Apr) (Not SA)
UTC+8 21:00 Fed Governor Waller Speaks on the U.S. Economy
UTC+8 20:30 U.S. Retail Sales MoM (Apr)
UTC+8 23:45 Fed Governor Barr Participates in a Fireside Chat
UTC+8 01:00 Next Day: Bank of England Governor Bailey Speaks at the London School of Economics and Political Science
