Fed Chair Jerome Powell's Dilemma: Cutting Rates in the Face of Inflation

 

 Executives who know Federal Reserve chairman Jerome Powell say he wants to cut rates in June badly to match his guidance, but his inflation miscalculations are adding up to more. 

Uh, so uh, you see there. Uh, this is somewhat of the conventional wisdom for me today in the meantime here.

 Uh, we spoke with uh, also a member of the Federal Open Markets Committee. Uh, and the president of the Federal Reserve Bank of San Francisco.

 Mary Daly is her name live now look there in some of the overcast, uh, gloomy day there in San Francisco.

 You can see the Golden Gate Bridge there, Uh, and I asked president Daly why is inflation going up?

 Will we see any rate cuts this year?

 And what are American consumers supposed to think including going into this election year on whether or not inflation is going to keep going up like it has the past 2 months

. Here's our conversation. So inflation was always going to be a ride down to 2%. That's just something that historically happens and this is no different. What we see is that services inflation with the strength of the labor market and the strength of consumer demand has really stayed strong, but let's remind ourselves. I think this is useful.

 It's always good to look back and see that in early 23 inflation was sticky and then it fell rapidly at the end of 23, So this is why we at the FED have been saying for a while now we need to be data dependent we need to respond to the economy as it evolves and right now policy is in a good place to do that. You know, that's the operative word that I've been hearing a lot We've been using it here on live now. sticky.

 Can you still use that term? In this CPI report Is this still sticky or or not? Well, I think we need to stick with sticky right now. Uh, so to speak until we learn more.

 so you could think that this is a sticky start to the year, which is what we saw last year or you could think that it's indicative of more to come and that's why we spend a considerable amount of time not just looking at the backward looking data of the published releases, but also talking to firms businesses. 

workers about what they're seeing in the economy. and we're hearing repeatedly that businesses don't expect to continue to raise prices as quickly as they did last year in the coming year, but it remains to be seen it really depends on how the economy evolves and as you can see from other data. consumers continue to spend the labor market remains strong We definitely are not done yet. That's the main thing and there's no urgency. 

and I would underscore no urgency here to adjust the policy rate when we have an economy that's growing as strongly as it is and we have inflation. That's showing that's not giving me the confidence I need to start thinking about cutting. I see so, uh, let's talk about cutting right now because that's been the message. 

what since December that uh, we would expect. maybe 3 rate cuts maybe 4 rate cuts in 2024 a lot of you know experts that. I've been speaking with um say it's just not likely this year at all. 

Uh, let alone in June so to speak so do you anticipate no cuts this year? 

So I'm remaining open-minded here. I think it's not actually. um a good idea to do more than simply say how we expect the economy to evolve because ultimately No 1 know you can only say what you expect and you know we have projections we release them collectively

. uh 4 times a year we released them in March from the fomc and the main message of projections is projections are not promises. 

They're simply a sense of where you expected the economy to evolve and if the economy evolves, as expected this is the rate cut path we would think most likely you're absolutely right that projection. said 3 rate cuts as the median but again, you know that happened in March and we've received other data since then and we have a lot more data to receive before we take any action. 

So I'm decidedly in the position of let's remain patient. Let's not urge ourselves to move in any direction. We've got the rate in a good place. It's restrictive and We have to hold it there until we're confident. that inflation is on a path to come down. in the last 3 months of data have not given me that confidence. 

Yeah, I want to just kind of outline another maybe hypothetical situation. Um, but other fomc board members chairman Powell, have you been discussing the possibility? 

uh of yet another rate hike this year Is that on the table after? 

numbers like the March CPI data we got today Do you think that's going to happen? 

Well, let me just in I don't want to divulge our conversation. because as you know, we released the minutes and that will uh tell you where what we're thinking collectively.

 but what I would bring you back to. is the uh summary of economic projections that that document were released in March and you saw what you saw there is a sense of it could be 2 rate cuts. It could be 3 rate cuts. That's where the bulk of the committee. was. and I think that's a relevant place to start that if the economy. evolves with the policy rate where it is. 

we would expect that we begin to normalize as the economy slows, but what we're seeing is we're not there yet and there's no urgency to adjust that policy rate now, but I don't think we should declare just like I didn't think we should declare how many rate cuts we would have I don't think we should declare that They're off the table. I think we really data dependence is hard. because it says that you don't know.

 but it says that we're going to Be watchful and we are ready to react to what the economy brings we the last 3 months of data. Tell me that we're not there yet. Okay. 

would you ever Envision that that 2% Target? rate would be moved so to speak you know, the goalposts moved back. uh, maybe at 3% you know, because it has been somewhat elusive, you know, Yes the the downward Trend toward 2% over the last 2 years. has been steady but the last 2 months it's been retreating from that Target.

 Um, is that on the table as well? Uh, maybe moving? absolutely not. No, there's no. sense in which the American people. would. hold up wouldn't hold us accountable for saying. uh, we we thought we saying uh, we we thought we could do it but we can't because we have the tools and we have most importantly the commitment.

 We remain Resolute to restore price stability as we've defined it. It's more than just the number. It's a commitment to the American people that when they go to bed at night or get up in the morning. They don't have to worry about inflation don't have to worry about inflation. And right now people still when I asked them.

 What's Your Number 1 concern? them. What's Your Number 1 concern inflation? And I think that's what we want to take away. We want to go back to a place where inflation's not people's number 1 concern they