Inflation Down, Rate Cuts Ahead: Fed Signals Shift
- Barry B
- Jul 12, 2024
- 2 min read
Fed Officials Lean Towards Rate Cut Post Cooler CPI Data
Over the past week, softer-than-expected inflation data has led several Federal Reserve officials to express support for a potential rate cut, while others remain cautious, awaiting further evidence.
Inflation Data
Following a recent report showing a lower-than-expected rise in the Consumer Price Index (CPI), Chicago Fed President Austan Goolsbee, who will vote in July, expressed optimism about the current inflation trend. He noted, "The committee put out a statement saying, we would not anticipate cutting rates until we were more convinced we're on a path to 2%. My view is this is what the path to 2% looks like." Goolsbee found the shelter reading particularly encouraging and emphasized that maintaining current rates equates to tightening further as inflation falls.
Similarly, San Francisco Fed President Mary Daly highlighted the recent data on employment and inflation, suggesting that some adjustment to interest rates might be warranted soon.
A Cautious Stance
Conversely, St. Louis Fed President Alberto Musalem, a newer member, remains cautious. He acknowledged the progress on inflation but emphasized the need for more evidence before supporting a rate cut, indicating a more hawkish stance.
Key Data Releases Ahead
The upcoming Federal Reserve meeting on July 31 is crucial. Two significant data releases before this meeting could influence the decision:
Q4 Job Growth Figures (July 21): The QCEW will release its figures for 2023 Q4 job growth. The Philly Fed estimates that the BLS overstated job growth by 521,000 jobs in Q4 alone, so the actual numbers could impact the Fed's decision.
PCE Inflation Report (July 26): The Personal Consumption Expenditures (PCE) report, the Fed's preferred inflation measure, is expected to show a 0% reading on the core, potentially bringing the year-over-year figure down to 2.4%. This proximity to the Fed's target could prompt a rate cut.
Market Expectations
While the market is almost 100% pricing in a rate cut for September 18, there is a possibility, albeit small, that the Fed could cut rates as early as July 31, depending on the upcoming data.
We will continue to keep you updated on these and other economic developments.