Chicago Fed President: Slowing Inflation Supports Rate Cuts, Future Policy Still Uncertain
Chicago Federal Reserve Bank President Goolsbee stated that as inflation slows, the Federal Reserve's interest rate cut policy is appropriate. He pointed out that the U.S. economy is steadily moving towards the 2% inflation target, and interest rates may be lowered in the next 12 to 18 months. Although economic data has been slightly better than expected, uncertainty regarding policy remains, especially as fiscal policy may impact the economy and prices. The market generally expects the Federal Reserve to initiate a rate cut cycle in 2024, but the specific timing will depend on future economic data
According to the Zhitong Finance APP, Charles Evans, President of the Federal Reserve Bank of Chicago, expressed approval of the latest inflation data and stated that it is appropriate for the Federal Reserve to adopt a rate-cutting policy as price increases slow down.
Evans pointed out that the U.S. economy is steadily moving towards the 2% inflation target, particularly in terms of housing prices, where price growth has shown a sustained slowing trend. "If we continue on the path of reducing inflation to 2%, then interest rates should be significantly lower than they are now in the next 12 to 18 months."
He believes that as the Federal Reserve approaches the "neutral interest rate" (the rate level that neither stimulates nor suppresses economic growth), the pace of future rate cuts may slow down. He emphasized that the Federal Reserve will take a cautious approach to ensure that adjustments to monetary policy are not too rapid or aggressive.
A report released this Friday showed that the Federal Reserve's preferred core inflation indicator—the core personal consumption expenditures price index rose by 0.2% month-on-month in December and increased by 2.8% year-on-year. This moderate growth trend, coupled with weak income data, further strengthened market expectations for continued rate cuts by the Federal Reserve this year.
After the Federal Reserve decided to maintain the interest rate at 4.25%-4.5% this week, Evans publicly stated for the first time that the latest economic data was slightly better than expected, but there are still many uncertainties, particularly regarding fiscal policies from the Trump administration and Congress that may impact the economy. Evans emphasized, "Uncertainty in policy still exists, and if it affects prices, it will also affect our decisions."
The market generally expects that if inflation data continues to cool, the Federal Reserve will initiate a rate-cutting cycle in 2024, but the specific timing will still depend on future economic data and the policy environment