Boston Fed president Susan Collins told Yahoo Finance there are “scenarios” consistent with one or two interest rate cuts “later in the year” while cautioning that the central bank has to stay patient amid volatile readings on inflation.
“It seems to me there are very plausible scenarios where later in the year it would be appropriate if we see strong continued good news in inflation and an economy that is aligning,” she said in an interview Tuesday.
Collins declined to say if that meant a first cut might happen in September as compared with November or December.
“We have learned that there is no crystal ball,” she added.
The comments came nearly one week after the Federal Reserve revised its outlook for interest rate policy in 2024, signaling just one cut instead of the three seen back in March.
Within the Fed’s “dot plot,” which maps out policymakers’ expectations for where interest rates could be headed in the future, eight officials penciled in one rate cut for 2024, while seven officials projected two cuts. Four officials saw no easing at all this year.
In the spring Collins said she had penciled in two rate cuts for 2024. On Thursday she acknowledged that “my view on how much easing might be appropriate this year has been reduced as I look at the data.”
When asked if that meant her baseline was one cut, she said, “We will have to let the data tell us.” She added that she can “imagine scenarios” consistent with either one or two cuts.
A number of other Fed officials have offered cautious commentary in the week since the last Fed meeting, where policymakers agreed to hold rates at a 23-year high in an effort to cool inflation.
Minneapolis Fed president Neel Kashkari said in a TV interview Sunday that it’s a “reasonable prediction” that the Fed will wait until December to cut interest rates.
Fed Governor Adriana Kugler on Tuesday predicted it would happen “sometime later this year,” while St. Louis Fed president Alberto Musalem said it could take “quarters” for the data to back a cut.
Fed Chair Jay Powell and his colleagues on the Federal Open Market Committee have been emphasizing they want to be sure inflation is moving “sustainably” down to their 2% target before starting cuts and that, in the interim, they expect to hold rates higher for longer.
Policymakers are expected to stay cautious because the latest readings on inflation and the economy offer a mixed picture.
Prices aren’t accelerating as much as they were during the first quarter, but recent cooler readings also don’t show enough progress for the Fed to start cutting.
The latest evidence of moderation on the inflation front came last Wednesday when a new reading from the Consumer Price Index (CPI) rose 3.3% over the prior year in May — a deceleration from April’s 3.4% annual gain in prices.
The year-over-year change in “core” CPI — which excludes volatile food and energy prices the Fed can’t control — was 3.4% compared with 3.6% in April and 3.8% in March.
Collins said Tuesday that the CPI report is consistent with an economy that is “becoming better aligned” but that “it is really important not to overreact to what has been encouraging” since the monthly inflation numbers are “really volatile.”
When asked if three straight months of lower inflation data would restore her confidence, she said “that would help.”
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