In a speech last night, Fed Governor Lisa Cook stated that the risks to achieving Fed’s dual mandate of employment and inflation have “moved toward better balance this year.” However, she emphasized that the economic outlook remains “always uncertain.”

Cook stressed the importance of addressing this uncertainty by considering “a range of scenarios,” rather than relying solely on the baseline forecast. She believes that Fed’s current policy is “well positioned” to respond to any changes in the economic outlook.

“At some point,” Cook noted, it will be appropriate to start lowering interest rates. However, the timing of any such adjustment will depend on how economic data evolve and their implications for the outlook and balance of risks.

Full speech of Fed’s Cook here.

Fed Governor Michelle Bowman, in a speech today, said her baseline outlook that US inflation will return to the 2% target, provided federal funds rate remains at its current level of 5.25-5.50% “for some time.” She emphasized that Fed is “still not yet at the point” where it would be appropriate to lower the policy rate.

Bowman stressed the need for Fed to “consider a range of possible scenarios” as monetary policy decisions evolve. She remains “willing” to raise interest rates “should progress on inflation stall or even reverse.”

Regarding inflation outlook, Bowman noted that since the beginning of 2024, there has been only “modest” progress on inflation. Core CPI has been running at 3.8% through May, which is significantly above the average inflation rate in the second half of last year. She expects inflation to “remain elevated for some time.”

Bowman also highlighted several upside risks to inflation. She mentioned that it is unlikely that further supply-side improvements will continue to reduce inflation. Geopolitical developments could also pose additional risks. Furthermore, increased immigration and continued labor market tightness could lead to persistently high core services inflation.

Full speech of Fed’s Bowman here.

San Francisco Fed President Mary Daly, in a speech last night, discussed the ongoing challenges with inflation and the labor market. Daly remarked that the inconsistent inflation data this year has not built confidence. While recent figures are promising, it remains uncertain if the path to sustainable price stability is secure.

While, the labor market has been slow to adjust, with only a slight increase in the unemployment rate, Daly warned that “we are getting nearer to a point where that benign outcome could be less likely. ”

Emphasizing Fed’s situation with “two goals, one tool, and a lot of uncertainty,” and Daly stressed that “policy has to be conditional” and policymakers have to “think in scenarios.”

Daly outlined the possible policy responses to different economic scenarios. “If inflation turns out to fall more slowly than projected, then holding the federal funds rate higher for longer would be appropriate.”

Conversely, “If inflation falls rapidly, or the labor market softens more than expected, then lowering the policy rate would be necessary.”

Daly also addressed a middle-ground scenario, saying, “If we continue to see gradual declines in inflation and a slow rebalancing in the labor market, then we can normalize policy over time, as many expect.”

Full speech of Fed’s Daly here.

In a CNBC interview today, Chicago Fed President Austan Goolsbee expressed cautious optimism about inflation in the US, describing himself as “closet optimistic” that there will be improvement on the inflation front.

Goolsbee refrained from commenting on the timing of rate cuts but emphasized the need for policymakers to consider whether the current high level of interest rates is appropriate for an economy showing signs of cooling beyond just inflation metrics.

He noted that factors such as rising unemployment claims, slightly increasing unemployment rate, and other indicators returning to pre-pandemic levels should prompt Fed to think more about balancing its dual mandates of controlling inflation and maintaining employment.