Federal Reserve Governor Cook said on Tuesday it would be appropriate to lower interest rates "at some point," adding that she expects inflation to gradually improve this year and then make faster progress through 2025.
“With inflation having made significant progress and the labor market cooling, at some point it will be appropriate to reduce the level of policy restrictions to maintain a healthy balance for the economy,” Cook said in a prepared speech Tuesday at the Economic Club of New York.
"The timing of any such adjustments will depend on developments in economic data and their implications for the economic outlook and the balance of risks," she said.
Earlier this month, the Fed kept its benchmark interest rate unchanged at its highest level in more than two decades, where it has remained for nearly a year, as policymakers said they needed to see more data to be confident that inflation was on a sustainable path toward their 2% target.
The U.S. core PCE price index for May, the Federal Reserve's preferred underlying price index to be released this Friday, is expected to rise by only 0.1% month-on-month in May, the slowest increase so far this year.
Cook expects the three-month and six-month inflation rates to continue to move lower on a "bumpy path," with monthly readings in the second half of this year similar to "favorable" readings in the second half of 2023. However, she said annual inflation will move roughly sideways.
"Beyond that, I think inflation will slow more sharply next year, with housing services inflation declining to reflect the past slowdown in new lease rents, core goods inflation remaining slightly negative, and core services inflation excluding housing slowing over time," Cook said.
The Fed governor also said monetary policy is restrictive because high interest rates put downward pressure on aggregate demand. While the economy remains resilient and the labor market is strong, high mortgage rates have slowed home sales and construction, and loan delinquencies are rising for some Americans as prices rise and borrowing costs increase.
Cook said the rise in delinquencies is "not yet big enough to impact the overall economy, but it's worth keeping an eye on." She added that the labor market is about the same as it was before the coronavirus pandemic, calling it "tight but not overheated." She said data show that job gains last year were exaggerated and are likely to remain so this year.
Cook said in a question-and-answer session after the speech that she and other policymakers are “concerned about the risk” that the labor market could “change rapidly” and that officials are prepared to respond.
Asked about the chance of a rate cut this year, she was noncommittal, saying policymakers were data dependent.
Earlier on Tuesday, fellow Fed Governor Bowman said she saw some upside risks to the inflation outlook and reiterated the need to keep interest rates high for some time.
“We are not yet at a point where it would be appropriate to cut the policy rate,” Bowman said in London on Tuesday. “Given the risks and uncertainties surrounding the economic outlook, I would be cautious in considering future changes to the stance of policy.”
The article is forwarded from: Jinshi Data
