Senior Official of the Federal Reserve "Likes" CPI Report, First Decline in September Appears Certain

Chicago Fed President Charles Evans described the latest inflation data as "great" and added that these data provide the evidence he has been waiting for, making him confident that the Fed is moving towards the 2% target.

Evans refused to provide guidance on the timing of the first rate cut. However, he emphasized the importance of the recent slowdown in housing inflation over the past few months, calling it "encouraging." He has been closely monitoring this area to determine when the Fed should cut rates. Evans said in a conversation with reporters on Thursday, "The committee has stated that we will not anticipate a rate cut until we are more confident that we are on the path to 2%. My view is that the path to 2% is what it is now."

Before Evans made the above comments, a report earlier on Thursday showed that a key indicator of consumer prices in June had the slowest increase since August 2021. Part of the slowdown is due to the long-awaited cooling of housing costs, which Evans has said are a key factor in achieving the Fed's inflation target. Data shows that various inflation rates have declined, leading investors to almost firmly bet on a rate cut at the September meeting. Policymakers will meet on July 30-31.

Evans will vote at the upcoming Fed meeting later this month as an alternate member of the Federal Open Market Committee (FOMC). He emphasized that keeping rates unchanged is actually tightening policy. He said, "You only take actual tightening measures if you think the economy is overheating. But in my view, this is not a sign of an overheating economy."

After the release of the latest June Consumer Price Index (CPI), two other policymakers also made statements. San Francisco Fed President Mary Daly said that given recent employment and inflation data, some adjustments to interest rates may be needed, but she did not provide a specific timetable for rate cuts. Daly told reporters on a conference call after the June CPI was released on Thursday, "It is clear that the risks to our established goals of price stability and full employment are well balanced, and monetary policy is working. Based on the information we have received so far, including data on employment, inflation, GDP growth, and economic outlook, I believe that some policy adjustments may be necessary."

St. Louis Fed President James Bullard said he needs more convincing evidence to support a rate cut. He said that the CPI data show "encouraging further progress in reducing inflation," but he wants more evidence to show that price pressures are easing. Bullard said last month that data supporting a rate cut is more likely to take "several quarters" rather than a few months.

While Evans' comments suggest that he is prepared to cut rates soon, he also indicated that if other policymakers vote to keep rates unchanged, he may not dissent in support of a rate cut at the July meeting Gulspie stated that he is open to pausing or continuing a series of rate cuts after the first rate cut, emphasizing that the interest rate trend will depend on inflation data.

Federal Reserve officials were spooked by higher-than-expected first-quarter inflation data and have kept rates at their highest level in over two decades for a year. With the cooling of inflation and the softening of the labor market, this may largely provide officials with the evidence they seek to believe that price growth is moving towards the 2% target.

Federal Reserve Chairman Powell told lawmakers earlier this week that he believes inflation is receding, but he is not yet confident that inflation will continue to slow to the 2% target. However, he also noted that officials are increasingly aware of the potential impact of high borrowing costs on the job market. While the U.S. unemployment rate remains at a low level of 4.1%, it has risen monthly over the past three months.

Gulspie said that the job market remains "quite solid," but the fact that the unemployment rate has risen from 3.4% is concerning. He said, "Labor market data does not indicate that the economy is on the brink of a recession, so there is no need to panic."

Mousalem also described the labor market as "strong" and stated that the Federal Reserve has time to assess more data before deciding whether to adjust policies. He said that the Fed's current policy stance is "restrictive," but not overly so