Jackson Hole Conference Pre-Blow: Federal Reserve Officials Support Starting Rate Cuts Soon, Advocating for Gradual Rate Cuts

Two Federal Reserve officials said they believe it is appropriate for the Fed to start cutting interest rates soon, and the subsequent rate cuts should be "gradual" and "orderly."

Boston Fed President Collins used these terms in an interview with Bloomberg News and Fox Business, while Philadelphia Fed President Harker used similar language in interviews with Reuters and CNBC in Jackson Hole, Wyoming. Neither of them provided a more precise definition of these terms in relation to the frequency of rate cuts.

For weeks, investors have been expecting the Fed to start cutting rates in September and have shifted their focus to the situation after September. Current bets on Fed fund rate futures predict that policymakers will cut rates by a total of 75 or 100 basis points by the end of the year.

Collins said officials should proceed gradually when starting accommodative policies, emphasizing that she has not seen any "major warning signals" in the economy. The Boston Fed President said her focus is on "maintaining a healthy labor market while continuing to lower inflation."

"September, we need to start the process of lowering rates," Harker told CNBC. "We need to start lowering rates in an orderly fashion."

Harker added that he wants more information before deciding whether it is appropriate to take a 25 or 50 basis point action next month.

In contrast, event host and Kansas City Fed President Schmidt said he is not yet ready to support rate cuts.

In an interview recorded on Wednesday and aired on Thursday with Bloomberg TV's Michael McKee, Schmidt said, "For me, it makes sense to really look at some data in the coming weeks. Before we take action - at least before I take action or recommend taking action, I think we need to see more data."

Minutes from the Fed's July 30-31 policy meeting released on Wednesday showed that "several" Fed officials believed the reasons for the rate cut last month were justified, while "the vast majority" of officials believed it was appropriate to start easing policy at the September 17-18 meeting.

All three officials stated that their views on the economy have not changed significantly after the Bureau of Labor Statistics made preliminary benchmark revisions to annual employment data through March 2024. The BLS said on Wednesday that the net addition of jobs in the U.S. during this period could be revised down by 818,000.

Schmidt said, "While this is a large number, it doesn't really change my thinking when considering monetary policy."

Collins said recent data shows that the economy is still in good shape overall. She said the inflation rate has dropped significantly, giving more confidence that the economy is moving towards the Fed's 2% inflation target Although the unemployment rate is rising, reaching 4.3% in July, it is still at a historical low, and the labor force participation rate has been consistently high. Collins stated that the pace of hiring has slowed down, but the number of layoffs has not increased, indicating that the labor market is gradually cooling down in an orderly manner.

She said, "I do think that recalibration is starting to become important, but I would envision doing so gradually," adding, "There is no predetermined path."

Collins said, "I believe there is a clear path to achieve our goals that will not lead to unnecessary recession and will keep the job market healthy. It is important to maintain a healthy labor market while we continue to lower inflation, which is one of the reasons I think it is appropriate to start easing monetary policy." She noted that one of the risks to the economic outlook is that if the view that the U.S. job market is cooling too quickly becomes dominant, the economy could spiral into a soft patch through a "self-fulfilling" prophecy.

Federal Reserve Chairman Powell is set to speak on Friday, and investors will closely watch for any hints on the expected pace of actions by policymakers