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Fed officials urge patience about the timing of the initial interest rate cut

Fed officials urge patience about the timing of the initial interest rate cut

Written by Pete Schroeder and Howard Schneider

WASHINGTON/AMELIA ISLAND, Fla. (Reuters) – Federal Reserve policymakers said on Tuesday it would be wise for the U.S. central bank to wait several more months to ensure inflation actually returns to its 2% target path before starting interest rate cuts.

“Absent significant labor market weakness, I need to see several more months of good inflation data before I feel comfortable supporting an easing of the monetary policy stance,” Fed Governor Christopher Waller said at the Peterson Institute for International Economics. in Washington.

But he also quashed any speculation that interest rates may need to rise again for demand to ease enough to ease price pressures further, saying the latest inflation data is “reassuring” and that the likelihood of a rate hike is “very low.”

“We don't want to slide into the abyss,” Waller said. “That's the crucial thing.” “We don't see anything at the moment. It looks like staying here for three or four months will cause the economy to slide into the abyss.”

The Fed has kept its benchmark interest rate in a range of 5.25%-5.50% since last July, and after three months of stronger-than-expected inflation readings in the January-March period, it is cautiously welcoming only the latest encouraging signs that monetary policy is easing. The labor market and return to further progress in reducing inflation towards its target of 2%.

“We read this as confirmation that Waller is open to a cut in September if, but only if, there is a more definitive downward shift in inflation over the coming months,” said Krishna Guha, vice chairman of Evercore ISI.

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These remarks also appeared to increase market confidence in the Fed's interest rate cuts, as traders confirmed their expectations for the first cut in borrowing costs in September and the second at the Fed's final policy meeting of the year in December.

“Instead of waiting longer”

In a separate appearance, Atlanta Fed President Rafael Bostic struck a similar tone to Waller, suggesting that the central bank needs to be cautious about approving its first rate cut to ensure it does not impinge on pent-up spending among businesses and households. Between companies and families. Policymakers are in a position where inflation is accelerating.

“It is in our interest not to start rebounding,” Bostic told reporters on the sidelines of the Federal Reserve Bank conference in Atlanta, Florida. “For me, I prefer to wait longer to make sure that does not happen.” Inflation is still expected to decline during the year with a rate cut due in the fourth quarter.

“I'm in no rush to lower interest rates,” Bostic said. “We need to make sure that when we start on this path, it is unambiguous that inflation will reach 2%… Having this potential exuberance means that we have to be very careful about when we take that first step, and it may mean that “It should happen later.”

In a separate event at the Dallas Fed, Fed Vice Chairman for Supervision Michael Barr added his voice to the chorus, reiterating that higher inflation readings in the first quarter did not increase his confidence that price pressures are easing.

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“For me at least, this means that we need to stay where we are for longer than we previously thought… We need to see more evidence of continued progress in inflation to be in a position to consider adjusting it.” Policy price.”

The policymakers spoke a day before the US central bank's April 30-May 1 meeting minutes were released, a key readout of a meeting that ended with officials feeling – in the words of Fed Chairman Jerome Powell – that “it's going to take longer.” than previously expected” until they have enough confidence in falling inflation to cut interest rates.

(Reporting by Pete Schroeder and Howard Schneider; Writing by Anne Safire and Lindsay Densmuir; Editing by Paul Simao)