Yahoo Finance Fed rate cuts could happen ‘later this year’: Mester Read full article 25 Jennifer Schonberger · Senior Reporter February 6, 2024 at 7:20 PM · 3 min read
Cleveland Fed President Loretta Mester said Tuesday that the central bank could lower interest rates “later this year,” warning it would be a “mistake” to cut too soon.
“It would be a mistake to move rates down too soon or too quickly without sufficient evidence that inflation was on a sustainable and timely path back to 2%,” Mester said in a speech in Columbus, Ohio.
But “if the economy evolves as expected, I think we will gain that confidence later this year, and then we can begin moving rates down.”
Mester is a voting member of the Fed’s Federal Open Market Committee, which decides whether rates go up or down, but will exit her post in mid-2024 due to the Fed’s mandatory age and length-of-service policies .
Loretta Mester, president of the Federal Reserve Bank of Cleveland.(Shannon Stapleton/REUTERS) (REUTERS / Reuters) Mester is the latest policymaker to pump the brakes on Wall Street expectations for a cut in the early part of 2024.
That includes Chair Jay Powell, who said in a press conference last week that a March cut is “probably not the most likely case or what we’d call the base case.” He made the same point in an interview on the TV program “60 Minutes” that aired Sunday night.
A stronger-than-expected jobs report released Friday means the central bank is even more likely to move out any consideration of interest rate cuts closer to the second half of an election year.That places the Fed on a collision course with figures on both sides of the political divide who are ready to attack Powell if the cuts come too soon or too late for their liking.
Those critics include Republican front-runner Donald Trump, who argued Friday that “it looks to me like he’s trying to lower interest rates for the sake of maybe getting people elected.”
What had the Fed considering cuts this year is the faster-than-expected drop in inflation over the past year.Mester says there are reasons to be cautious in assuming that the rate will continue falling at the same clip.
Story continues Supply chain disruptions that accounted for a large portion of the rapid drop have largely been resolved, she said, and can’t be counted on this year to do as much to bring inflation down.
At the same time, she expects consumer spending to moderate this year, especially as lower-income families have spent savings accumulated during the pandemic.
The Fed, Mester said, is in a position of risk management now when it comes to deciding when to lower rates, pointing out that it doesn’t want to undermine the work in getting inflation back down at this point.
She says the strong job market and continued strong consumer spending give the Fed the opportunity to hold rates at current levels to gather more evidence that inflation is sustainably returning to the central bank’s 2% target.
“The FOMC does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2%,” she said.
“This is better than finding ourselves in a situation where we begin easing too soon, undo some of the progress we have made on inflation, potentially destabilize inflation expectations, and then have to reverse course.”
On the other hand, Mester says if year-ahead inflation expectations continue to decline, maintaining rates at current levels for too long would act as a de facto tightening that could risk deteriorating the job market.
When the Fed does begin lowering rates, Mester expects it will do so at a gradual pace as the central bank navigates keeping inflation at bay while making sure the job market remains strong.
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
TRENDING 1.Beyond the Ticker: Disney 2.Deadly decade-long listeria outbreak linked to cojita and queso fresco from a California business 3.
How private equity is changing the global soccer landscape with big investments in clubs and leagues 4.Natural gas consumption hits a daily high in January amid cold weather—but prices are still bearish 5.SpaceX probed by California over sex bias, retaliation claims.
