A wave of comments from several Fed officials overnight highlighted a consensus on the need for patience before initiating interest rate reductions. While the higher than expected inflation readings in January and February were “concerning”, they’re not seen as derailing the broader disinflation process yet. Nevertheless, the sentiment is clear: more evidence is required to confirm inflation’s downward path towards 2% target before any policy easing is initiated.

Cleveland Fed President Loretta Mester emphasized the necessity of observing “a couple more months of data” to verify if the recent inflationary trends are indeed reversing. Mester pointed out the need for “more evidence” that supports the continuation of inflation’s decline. Meanwhile, Fed is in a “policy position” to adjust policy “more swiftly and sooner” if labor markets were to “deteriorate significantly”

Minneapolis Fed President Neel Kashkari on penciled in two “rate cuts” this year back in March, predicated on inflation’s decline towards target.” Yet, if inflation is “moving sideways”, he would question “whether we needed to do those rate cuts at all.”

Chicago Fed President Austan Goolsbee said the inflation in the first two months of the year “should not knock us off the path back to target”. He views housing inflation as the “most valuable indicator” now. “If it does not come down, we will have a very difficult time getting overall inflation back to the 2% target.”

Richmond Fed President Thomas Barkin emphasized the strategic patience afforded by a “strong labor market,” suggesting that Fed has the time needed for the economic “clouds to clear” before commencing with rate adjustments.

Fed Governor Adriana Kugler said overnight that if the disinflation process and labor market conditions evolve in line with her current expectations, a policy rate reduction within the year could be warranted.

“With demand growth cooling, given the backdrop of solid supply, my baseline expectation is that further disinflation can be accomplished without a significant rise in unemployment,” Kugler stated

“If disinflation and labor market conditions proceed as I am currently expecting, then some lowering of the policy rate this year would be appropriate,” she remarked.

Fed Chair Jerome Powell downplayed the significance of recent labor market and inflation data that surpassed expectations, he noted that these developments do not significantly alter the Fed’s overall economic outlook.

“Recent readings on both job gains and inflation have come in higher than expected,” Powell said at a forum at Stanford University overnight. However, he was quick to clarify that these developments do not fundamentally shift the broader economic narrative, which he described as “one of solid growth, a strong but rebalancing labor market, and inflation moving down toward 2 percent on a sometimes bumpy path.”

In discussing the Federal Reserve’s approach to monetary policy easing, Powell affirmed the “meeting by meeting” decision-making process and acknowledged that rate cuts are “likely to be appropriate at some point this year.”

Yet, he stressed the prerequisite of having “greater confidence” in inflation’s downward path towards 2% target before any interest rate red reduction would be considered.

“Given the strength of the economy and progress on inflation so far, we have time to let the incoming data guide our decisions on policy,” he remarked.

In a CNBC interview today, Atlanta Fed President suggested that rate cuts could be on the horizon by the end of 2024, contingent on the economy’s performance. Bostic outlined a scenario where “continued robustness in GDP, unemployment, and a slow decline of inflation through the course of the year” could warrant a policy adjustment in the fourth quarter.

He also acknowledged the persistence of inflationary pressure into the current year, “hasn’t moved very much relative to” levels observed at the end of 2023. “There are some secondary measures in the inflation numbers that have gotten me a bit concerned that things may move even slower,” he warned.

“Those are much higher now than they were before and they’re starting to trend back to what we saw in the high inflation period,” Bostic added. “They’re moving away from what we’d like to see. So I’ve got to make sure that those aren’t hiding some extra upward pressure and pricing pressure before I’m going to want to move our policy rate.”

San Francisco Fed President Mary Daly offered described three rate cuts this year as a “very reasonable baseline.” However, she was careful to clarify that such a projection should not be interpreted as a commitment, stating, “not a promise.”

Daly highlighted the current state of economic growth as a factor tempering the immediacy for policy adjustments, noting, “Growth is going strong, so there’s really no urgency to adjust the rate.”

Furthermore, Daly voiced concerns over the risks associated with prematurely lowering interest rates. She warned of the “real risk” that too early a cut could entrench the “toxic tax” of persistently high inflation.