Senior officials from the Federal Reserve have spoken intensively: The anti-inflation measures have been effective, and interest rate cuts still depend on data

After the Federal Reserve continued to hold steady last week and lowered expectations for interest rate cuts this year, Fed officials began to speak intensively on Tuesday. New York Fed President Williams and Richmond Fed President Barkin both stated that while progress has been made in combating inflation, future rate cuts must be based on economic data. Barkin stated that he would not consider changing rates until he sees inflation persistently drop to the Fed's 2% annual target, and he also mentioned that staying put after a rate cut in the future might be reasonable.

New York Fed President: Expected inflation pressures to continue easing

FOMC permanent voter, Fed Vice Chairman, and New York Federal Reserve Bank President John Williams stated on Tuesday that the U.S. economy is moving in the right direction, but he did not indicate when he would support a rate cut. He emphasized that any decisions this year regarding the timing or extent of rate cuts will depend on upcoming economic data. He noted that recent inflation data is encouraging and expects price pressures to continue easing.

"There are very good signs of supply-demand balance, and I do see the process of disinflation continuing. I expect inflation to continue to decline in the second half of this year and next year."

Williams also mentioned that while economic data is generally good, hiring has slowed down. Previous data showed signs of weakness in household survey employment, but employment data from business surveys remains very strong. He mentioned that wage reports "may have been a bit exaggerated" and that the Fed will learn more in the coming months.

According to last week's forecasts, Fed officials lowered their expectations for rate cuts this year, with the median official predicting only one rate cut.

Williams stated last month that there is "ample evidence" that the Fed's current policy stance is affecting the economy, and he expects inflation to continue cooling in the second half of this year. When asked on Tuesday whether the fall rate cut involved political factors, Williams emphasized ignoring political factors and focusing on making the right decisions.

Richmond Fed President: Inflation has reached the end but difficult to return to the right track

Richmond Federal Reserve Bank President Thomas Barkin, who has voting rights this year, stated on Tuesday that he would not consider changing rates until he sees inflation persistently drop to the Fed's 2% annual target, and he also mentioned that staying put after a rate cut in the future might be reasonable.

Barkin pointed out that inflation in the services inflation index remains stubborn, while commodity prices have cooled down. Additionally, housing and shelter inflation remain stubborn. Meanwhile, the data in the job market is healthy, but there are also some worrying signs.

Like Williams, Barkin also believes that inflation is improving, attributing this to the effectiveness of restrictive monetary policy and the normalization of supply chains. He mentioned that the CPI report in May was very encouraging.

"We are clearly at the end of inflation, but the question is, 'Have we fully returned to the right track?' It is difficult to judge how much signal should be drawn from data from the second half of last year, the first quarter of this year, or the recent weeks." Bullard refuses to give a specific numerical level he would like to see in the monthly inflation data, but points out the need to see "the sustainability and breadth of inflation slowing down."

"Sustainability means that overall inflation continues to move along a path that is believed to be heading towards 2%, while breadth means that disinflation occurs across the entire basket of goods, not just driven by a small portion."

As a preferred inflation gauge for the Fed, the Personal Consumption Expenditures Price Index for April showed that over half of the categories in the basket rose by more than 3% year-on-year. This is roughly twice the pre-pandemic average level. For Bullard, such a slowdown in inflation is not yet broad enough