Fed's Bullard: Interest rates need to be cut not only quickly, but also multiple times

Chicago Fed President Charles Evans said in an interview that the long-term trends in the labor market and inflation data prove that the Fed's rate cut should start soon and gradually ease interest rate policy over the next year.

Evans stated that from a long-term perspective, inflation is significantly declining, and the rate of increase in unemployment exceeds the expectations of Fed officials in June.

Given the more optimistic inflation data and less optimistic unemployment data, Evans stated that "it is clear that not only do rates need to be cut quickly," but they need to be cut multiple times in the next 12 months, as predicted by the Fed in its recent dot plot.

Evans sees more warning signs of a cooling labor market. Officials have welcomed the cooling of the labor market in recent months, believing it could lead to sustained economic growth. However, continued weakness increases the possibility of further cooling in the labor market, which could "evolve into a worse situation."

The U.S. Labor Department will release the August non-farm payroll report on Friday, providing clues to this key issue. The August employment report can generally help determine the expected magnitude and pace of rate cuts.

At the same time, Evans stated that he will not rely too much on employment data for a single month. He said, "I don't want us to make decisions based on a single data point."

The Fed has kept its benchmark interest rate between 5.25% and 5.5% for over a year. With the decline in inflation during the same period, Evans stated that the Fed's benchmark interest rate has exerted increasing downward pressure on economic demand.

He said that policy is now at the tightest level of the entire tightening cycle, which began in early 2022. "If we maintain tightening for a long time, we will have to address the employment aspect of our mission," meaning high rates will harm the labor market.

Over the past year, the unemployment rate has gradually risen, reaching 4.3% in July, the highest level since October 2021. The median forecast of Fed officials is that the unemployment rate will only rise to 4.2%.

He said, "This does not necessarily mean a recession is imminent." But it does mean that we must now pay closer attention to the employment aspect of our mission.

Evans expressed confidence that inflation can reach the Fed's 2% target path. He believes that an economic soft landing, where inflation cools without a recession, is still possible.

Despite conflicting information in the data, the recent Fed economic conditions survey (the Beige Book) showed some uncertainty in the outlook. In the survey, nine out of twelve Fed districts reported flat or negative growth.

The Chicago Fed President stated that interpreting economic prospects is challenging due to how different this post-pandemic business cycle is from other expansion periods.

Previously, Fed Chairman Jerome Powell explicitly stated at the Jackson Hole symposium in Wyoming that the central bank is prepared to cut rates Traders in the financial markets are debating the possible scale of action by the Federal Reserve at the meeting on September 17th to 18th. Economists generally expect a 25 basis point rate cut, but some believe that if the employment report released on Friday shows weakness, it may prompt the Fed to take a larger 50 basis point rate cut