New York Fed president John Williams offered some reassurances to investors a day after another hot inflation reading spooked markets, saying it will make sense to cut rates gradually “starting this year” if the economy proceeds as expected.
“I expect inflation to continue its gradual return to 2%, although there will likely be bumps along the way, as we’ve seen in some recent inflation readings,” he said in a new speech delivered Thursday morning.
He expects the Personal Consumption Expenditures index, which is the Fed’s preferred inflation gauge, to be at 2.25% to 2.50% this year “before moving closer to 2% next year.” The central bank’s goal is to bring inflation back down to 2%.
The economic projections issued by Fed officials in March “indicate that if the economy proceeds as expected, it will make sense to dial back the policy restraint gradually over time, starting this year.”
His comments follow a chaotic day in the markets as investors became fearful that another hotter-than-expected inflation reading meant the Fed will have to push back the number and timing of interest rate cuts this year.
The Consumer Price Index (CPI) rose 3.5% over the prior year in March, an acceleration from February’s 3.2% annual gain in prices and more than economists expected.
The year-over-year change in the so-called “core” CPI — which excludes volatile food and energy prices — was 3.8%, which was the same level as February but a tenth of a percent higher than expected.
The stock market fell following the CPI release, and the odds in favor of a June rate cut from the Fed evaporated, stomping out what had been a commonly held belief on Wall Street.
Traders who had been betting on a June cut now see a roughly 81% chance the Fed does nothing in June and a roughly 42% chance of a cut in July.
Read more: What the Fed rate decision means for bank accounts, CDs, loans, and credit cards
They also scaled back the number of rate cuts they see this year to two, less than the median of three penciled in by Fed officials at their last policy meeting in March.
The minutes of that meeting released Wednesday showed that “almost all” participants agreed there would be rate cuts at some point this year, even as some noted that hotter inflation readings at the start of the year shouldn’t be discounted as “statistical aberrations.”
“Participants generally noted their uncertainty about the persistence of high inflation and expressed the view that recent data had not increased their confidence that inflation was moving sustainably down to 2%,” according to the minutes.
Fed officials agreed, however, that they had reached the peak of the current rate-tightening cycle and that monetary policy was well positioned to respond to the economic outlook, including the possibility of keeping rates higher for longer if inflation drops more slowly.
They expect there to be bumpy, uneven monthly inflation readings on the path to their 2% inflation target.
That was a point that Williams returned to Thursday, echoing recent comments from Fed Chair Jay Powell.
Click here for in-depth analysis of the latest stock market news and events moving stock prices.
Read the latest financial and business news from Yahoo Finance
Credit: Source link
