Two U.S. Federal Reserve Bank presidents, who are dovish within the Federal Reserve (Fed), tried on Wednesday (5th) to dispel unrealistic expectations for a slowdown in rate hikes, and made it clear that there would be no rate cuts in 2023.
“We (decisions) depend on the data,” said Mary Daly, president of the Federal Reserve Bank of San Francisco, in an interview. “When the data shows the evidence we need to see, we will turn to a slower pace. But if the data has not It manifests, and we just have to continue what we’re doing.”
Daly added that it will be difficult for the Fed to slow the pace of policy tightening with core inflation still climbing.
A dot plot of rate forecasts for the Fed’s September meeting showed no rate cut until 2024, but markets forecast a possible 30 basis point cut by the end of 2023.
Atlanta Federal Reserve Bank President Raphael Bostic said on the same day that despite speculation that the Fed may start cutting interest rates in 2023 as the economy cools, he does not think it will happen “so soon.”
He stressed that the battle against inflation is “probably still in the early stages,” so the Fed must remain vigilant that it shouldn’t stop fighting inflation because of any economic weakness.
“I don’t think that (referring to a rate cut in 2023) is likely to happen,” Daly said. Fed officials want to raise rates to levels that limit economic growth and hold them there for a while until they see inflation actually hitting its 2 percent target.
Neither Daly nor Postik have the right to vote this year, but will both serve as rotating members in 2024.
The US core consumer price index (CPI), excluding food and energy, rose at an annual rate of 6.3% in August, accelerating from 5.9% in July. September data will be released next Thursday (13th). Prior to this Friday, the much-anticipated nonfarm payrolls report for September will also be released.
Daly, who has repeatedly expressed doubts about a recession and argued that the Fed needs to be “extremely” data-focused in its fight against inflation, said on Wednesday that “flexibility and determination” must go together.
She predicts that the rate hike cycle will peak at 4.5-4.9%, depending on inflation and employment data.