Federal Reserve (Fed) policymakers are scheduled to deliver speeches on Friday as investors reassess the interest rate outlook following the April Consumer Price Index (CPI) data. According to the CME FedWatch Tool, the probability of no change in the Fed's policy rate in September holds around 30%.
Minneapolis Fed President Neel Kashkari, Fed Governor Christopher Waller, and San Francisco Fed President Mary Daly are among the Fed officials that will speak in the American session.
The Fed has adopted a cautious tone regarding the timing of the policy pivot following the stronger-than-expected inflation readings in the first quarter of the year. The US Bureau of Labor Statistics reported on Wednesday that the core Consumer Price Index (CPI) rose 3.6% on a yearly basis in April.
This reading followed the 3.8% increase recorded in March and came in line with the market expectation. On a monthly basis, the CPI and the core CPI both rose 0.3% after rising 0.4% in March. The US Dollar (USD) came under bearish pressure as market participants assessed the inflation data, with the USD Index falling to its lowest level in over a month, losing 0.7% on the day.
Federal Reserve Bank of Atlanta President Raphael Bostic appeared late Thursday, hinting at the possibility of late-2024 rate cuts but emphasized the need for patience on interest rates. Bostic expressed his satisfaction with the progress made on inflation in April but cautioned that the Fed is not yet in a position to ease rates. He highlighted the continued pricing pressures in the economy and noted that many businesses are reaching the limits of their pricing power.
Bostic expects inflation to fall slowly and economic momentum to continue, which could make it appropriate to reduce rates toward the end of the year.
Similarly, Loretta Mester, President of the Federal Reserve Bank of Cleveland, emphasized that maintaining the current levels of Fed policy will aid in returning still-elevated inflation to the 2% target.
She underscored that the current restrictive policy is well-positioned to help lower inflation and that it will take longer to gain confidence that inflation is moving towards the target. Mester highlighted the risks to inflation and noted that downside risks to growth and hiring have fallen, expecting gradual progress on lowering inflation.
Richmond Federal Reserve Bank President Thomas Barkin told CNBC on Thursday that the latest Consumer Price Index (CPI) showed that inflation is not yet at the desired level. Barkin pointed out that companies are still attempting to raise prices, especially in the services sector.
He acknowledged that while labor market numbers are normalizing, inflation remains a long-term challenge. Barkin emphasized the need to maintain rates for a longer period to achieve the required impact on inflation and noted the strong labor market conditions.
Federal Reserve Bank of New York President John Williams expressed that he doesn’t see the need for a rate cut in the near term. Williams commented positively on the April Consumer Price Index (CPI) data, noting that the overall trend for slowing inflation looks good.
However, he still lacks confidence that inflation is moving sustainably towards the 2% target. Williams emphasized that monetary policy remains restrictive and well-placed, with no current need to raise interest rates.
He expects the economy to move into better balance, with the job market remaining tight but with excesses waning. Williams is optimistic that inflation will continue to retreat and expects unemployment to rise to 4% this year.
As the Federal Reserve officials continue to weigh in on the inflation data and future rate policy, investors remain cautious. The recent speeches by Fed policymakers reflect a mixed sentiment about the timing of potential rate cuts, with a consensus on the need for patience and vigilance.
The upcoming comments from Minneapolis Fed President Neel Kashkari, Fed Governor Christopher Waller, and San Francisco Fed President Mary Daly will further shape the market's expectations and influence the risk mood and the performance of the US Dollar.
Comments