Roger Ferguson, former vice chairman of the Federal Reserve, gave his views on the direction of future monetary policy in a recent speech. Ferguson clarified that a rate cut is unlikely at the July meeting. He stressed that the Fed has repeatedly stressed that confidence must be strengthened before adjusting interest rates. Many market analysts share the same view, warning against premature rate cuts amid uncertain economic conditions.
Ferguson mentioned that the Fed considers a strong gross domestic product (GDP) report as a positive indicator that the economy can withstand higher interest rates. This view reduces the urgency of an immediate rate cut. However, signs of weakness have also emerged, such as the month-on-month weighted price index being lower than expected and the labor market starting to stabilize or possibly weaken.
Ferguson speculated that the Fed may use the July meeting as a fulcrum to provide signals to increase confidence in a possible rate cut in September. He stressed that despite signs of weakness in the economy, the economy will not decline rapidly. Therefore, the Fed can wait until September to adjust interest rates.
The recent GDP data has a crucial impact on the Fed's future actions. Ferguson believes that these data show that the economy is still strong enough to withstand higher interest rates. This view is consistent with the Fed's cautious attitude, as a hasty rate cut may not be necessary under current economic conditions. The apparent resilience of GDP data suggests that the economy is not on the verge of collapse, reducing the possibility of a hasty rate cut.
The Fed is likely to maintain its current stance at the upcoming July meeting, treating it as a transition period rather than a decisive moment for rate cuts. The strong GDP report supports a wait-and-see attitude, and potential signals for future adjustments may appear in September. This cautious strategy is aimed at avoiding jeopardizing the expected soft landing of the economy.
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