The Federal Reserve (FED) is facing diverse opinions on when to cut interest rates, reflecting the uncertainty surrounding the economy's trajectory. Within the FED, eight officials predict two rate cuts, seven expect one, and four see none. The economy grew at a 1.4% annualized rate in Q1, with the Atlanta FED’s forecasting tool suggesting a stronger 3.1% growth for Q2. Employment figures also showed a significant increase, with nonfarm payrolls rising by 272,000 in May.
On the inflation front, the core Consumer Price Index (CPI) excluding food and energy registered a 3.4% increase over the past year, the lowest in three years. The FED’s preferred measure, the Personal Consumption Expenditures (PCE) Index, stood at 2.7%, above the target of 2%. Despite favorable May CPI data, FED Chairman Jerome Powell indicated that it wasn’t sufficient to justify a rate cut.
Minneapolis Federal Reserve President Neel Kashkari echoed the need for patience, stating the FED is in a good position to wait for more data before deciding on rate cuts. The possibility of a rate cut remains, but the timing and frequency are uncertain. Experts like Kathy Bostjancic see the potential for two rate cuts this year, starting as soon as September. However, this depends on incoming data supporting such a move. The FED’s median forecast still suggests a single rate cut this year, likely in December.