Fed’s Bowman: not yet at the point where it is appropriate to cut rates

  • Not yet at the point where it is appropriate to cut rates.
  • Should data show inflation moving sustainably to 2%, it will eventually become appropriate to gradually lower policy rate.
  • Baseline outlook continues to be inflation will return to 2% with policy rate held steady for some time.
  • Willing to raise the target rate at a future meeting if inflation progress stalls or reverses.
  • Will remain cautious in approach to future changes in policy stance.
  • Other central banks may ease monetary policy sooner or more quickly that the Fed.
  • Only modest further progress on US inflation seen this year.
  • Expect US inflation to remain elevated for some time.
  • Still see a number of upside inflation risks.
  • US labour market remains tight despite some further rebalancing.

Q&A session:

  • Central bank independence is very important and the Fed is apolitical.
  • Began to shift view on policy to be more scenario-based.
  • Need to see how subcategories of inflation evolve.
  • Closely monitoring the labour market for deterioration.
  • Doesn’t see any rate cut in 2024. Shifted cuts to 2025.

Bowman is a known hawk, so these comments are not surprising. The market sees a total of 48.8 bps of easing by the end of the year (basically 2 cuts) with 90% probability of no change at the upcoming meeting at the end of July.

A lot will depend on the next inflation data. I think the Fed will be more dovish if we get a good inflation report in July. Then, if we get some more good figures in August, Fed Chair Powell will likely pre-commit to a rate cut in September at the Jackson Hole Symposium.

This article was written by Giuseppe Dellamotta at www.forexlive.com.

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