Inflation is slowing, and at least one Federal Reserve official has said he is “open” to cutting interest rates at the central bank’s next meeting in September.
“The Fed is not going to be able to do that,” said Rafael Boucek, president of the Atlanta Federal Reserve and a voting member of the Federal Open Market Committee, which sets monetary policy. Financial Times He expressed openness to cutting interest rates before the fourth quarter.
The U.S. Labor Department said Wednesday that the consumer price index, the main gauge of inflation, fell below 3% in July on an annual basis for the first time since early 2021. That means inflation is getting closer to the Federal Reserve’s 2% target, the long-term average inflation rate that the central bank aims to achieve over time. Core inflation, which strips out volatile food and energy and is used to gauge price pressures in the economy, was also at a three-year low, a sign that prices are rising more slowly.
Meanwhile, the unemployment rate jumped to 4.3% in July, with the U.S. adding fewer jobs than in June and tens of thousands fewer than forecasters had expected. Slow job creation and weak job growth could be signs of a weak labor market.
While timing a rate cut is a delicate balance, Bousik said waiting before cutting rates is risky. Cutting rates too early could stoke inflation, while waiting could slow the economy. Timing is therefore critical to avoiding an economic hit in either scenario.
“Waiting brings risks, which is why we have to be more vigilant about this,” he said. F T“Since our policies are running at a snail’s pace in both directions, we really can’t afford to delay. We have to move as soon as possible.”
The Atlanta Fed president had previously backed a rate cut as the year approached, but acknowledged that recent positive inflation numbers had changed his thinking.
“We have long said that we want to see the numbers come in to give us more confidence that we are on the sustainable path to 2%, and I have to say that the numbers that have come in over the last few months have given me more confidence that we are on that path sustainably,” Boucek said.
Under its “dual mandate,” the Fed is responsible for maintaining price stability by hedging against inflation and promoting maximum sustainable employment. While Boucek described the labor market as “soft but not weak,” he said it was time for the Fed to shift its focus to rising unemployment.
“Now that inflation is within the permitted range, we have to look at the other side of the mandate, and there, we have seen unemployment rise significantly from its low levels,” Boucek said.
After markets were shocked by the collapse of the yen carry trade and major indexes ended the week lower, speculation of a September rate cut has sent the S&P 500 higher for five straight days. Traders are now speculating whether the Fed will cut rates by a quarter or half a percentage point.
Posetic was noncommittal about how much the Fed should cut interest rates, but said that if the labor market weakens faster than expected, “everything is on the table.” He noted that he doesn’t necessarily expect that to happen.
“If we see that there is a disruption happening that suggests that labor markets are going to collapse — or may (collapse) — I would be very supportive of moving more aggressively to minimize the amount of that pain,” Boucek said in an interview with CNBC News. F T.
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