Before the central bank annual meeting, the Fed's voting committee hinted: Inflation is under control, supporting gradual interest rate cuts

Federal Reserve officials recently signaled in media interviews that the central bank is about to adopt a "gradual rate cut" approach.

On the 18th, Mary Daly, President of the Federal Reserve Bank of San Francisco, stated in an interview with the Financial Times of the UK that the latest economic data shows that inflation is under control, and it is now time to consider adjusting borrowing costs from the current range of 5.25% to 5.5%.

Daly, who has voting rights at this year's FOMC meeting, called for a "prudent" approach. "Gradualism is not weak, slow, or lagging, it is just cautious. Although the labor market is slowing down, it is 'not weak'."

The market is closely watching Fed Chair Powell's speech on the economic outlook at the Jackson Hole Symposium on Friday night, trying to find the latest clues on Fed rate cuts during this meeting.

The Fed hopes to maintain a certain "restraint" to fully achieve the inflation task

Daly believes that although the labor market has slowed down, there is no need to worry excessively, as the U.S. economy has not entered a crisis.

In a speech earlier this month, she stated that it is too early to say whether the July employment report indicates an economic slowdown or real weakness. However, she warned that it is "extremely important" to prevent the labor market from weakening. She is "more confident" that inflation is moving towards the 2% target.

Currently, the market widely expects the Fed to achieve its first rate cut in four years at the next FOMC meeting next month, with a 70% probability of a quarter-point rate cut, while a few investors expect a half-point rate cut.

Investors generally believe that by the end of 2024, the U.S. federal funds rate will be 1 percentage point lower than the current rate. They speculate that in order to achieve this goal, the Fed will need to make at least one significant rate cut in the remaining three monetary policy meetings this year.

The Bank of England, the European Central Bank, and the Bank of Canada have already cut rates, but the relatively high U.S. inflation rate at the beginning of this year forced the Fed to wait.

Recent U.S. CPI data shows that U.S. inflation continues to cool down. In July, U.S. CPI rose by 2.9% year-on-year, hitting a three-year low. This data further solidifies the market's expectation of an imminent rate cut by the Fed.

As inflation falls and the labor market approaches balance, Daly stated that the central bank must "adjust policy rates to fit our current and expected economy."

The Fed hopes to loosen its existing monetary policy while still maintaining a certain "restraint" to fully achieve the inflation task.

She also mentioned that if the Fed does not adjust monetary policy in a timely manner based on inflation and economic growth, a very bad outcome will occur: on one hand, inflation control will not be achieved; on the other hand, the labor market will become unstable, and the employment situation will become very pessimistic.

Previously, Atlanta Fed President Raphael Bostic also stated that waiting too long to cut rates "does bring risks."