Senior officials from the Federal Reserve speak in unison: US inflation significantly cools down, with plenty of time to assess interest rate cut decisions

According to the Wise Finance APP, Tom Barkin, President of the Federal Reserve Bank of Richmond, holds a cautiously optimistic view on the future direction of the U.S. economy. During an online event hosted by the National Association for Business Economics, Barkin pointed out that the Federal Reserve currently has time to assess whether the U.S. economy is moving towards normalization or if more proactive measures are needed to address potential economic weakness.

Barkin is optimistic about the inflation outlook, expecting positive inflation data in the coming months and believing that the recent trend of deflation is likely to continue. He stated, "In a healthy economic system, we have time to observe and judge whether the economy is gradually returning to a normal state, which will allow us to adjust interest rates in a stable and cautious manner. At the same time, he also emphasized that when necessary, the Federal Reserve will have to take action."

As the inflation rate approaches the Federal Reserve's 2% target, the labor market becomes a focus of concern for policymakers. Barkin believes that despite the July employment report showing a slowdown in hiring and an increase in the unemployment rate to 4.3%, reaching a near three-year high, the likelihood of mass layoffs is not high. Last week, Federal Reserve officials decided to maintain interest rates at their highest level in over 20 years.

Barkin pointed out that the key is whether these economic indicators are showing steady growth or significant fluctuations. Futures markets indicate that investors expect a rate cut of about one percentage point this year, while some economists predict that the Federal Reserve may cut rates by 50 basis points at the September meeting.

The price index PCE closely monitored by the Federal Reserve rose by 2.5% year-on-year in June. Next week, another key inflation indicator, the Consumer Price Index (CPI), will be released, further affecting market expectations for Federal Reserve policy.

Barkin concluded that the overall and breadth of economic performance in the past few months have been quite good, and various aspects of inflation seem to be stabilizing. Based on the ongoing dialogue and analysis, he holds a relatively optimistic view on the continued stability of the economy.

On the same day, Jeff Smiedt, President of the Federal Reserve Bank of Kansas City, also expressed optimism about recent inflation data at the Kansas Bankers Association Annual Conference in Colorado Springs. Smiedt believes that recent data shows inflation cooling down, providing a basis for the Federal Reserve to lower interest rates.

Smiedt pointed out that although inflation has been a persistent issue for the economy over the past decades, when evaluating data, we should be more cautious, looking for unfavorable factors in the data rather than just seeing the positive side. He emphasized that price fluctuations are normal, and the Federal Reserve needs more time to observe and determine the long-term trend of inflation.

In his speech, Smiedt stated that if inflation continues to remain low, he will be more confident that the U.S. is moving towards achieving the goal of price stability, and adjusting the policy stance would be appropriate. He mentioned that the current inflation rate is around 2.5%, close to the Federal Reserve's 2% target but not fully achieved yet.

Last week, the Federal Reserve decided to maintain the policy rate in the range of 5.25%-5.50%, a level that has been held for over a year. However, the Federal Reserve also hinted at the possibility of starting to lower borrowing costs next month as inflation and employment risks are gradually balancing out Despite the announcement of the Federal Reserve's policy decision, concerns about economic recession were raised shortly after a weak employment report, with Schmid holding a different view. He believes that despite the rise in the unemployment rate, the economy still shows resilience, with strong consumer demand. While the labor market has cooled down somewhat, it remains overall healthy.

Schmid believes that the current stance of the Federal Reserve's policy is not overly tight, and further cooling of the labor market is needed to further reduce the inflation rate. He also stated that if the economic conditions deteriorate further, his views may change, but he is not yet prepared to support a rate cut.

Finally, Schmid emphasized that the policy path will be determined by economic data and strength. Given the impacts the economy has faced since the turn of the century, he is unwilling to make any assumptions about the future path or endpoint of policy rates