Minneapolis Fed President Neel Kashkari has refined his expectations for interest rate cuts in 2024, now leaning towards possibility of fewer reductions due to robust economic data emerging since the year’s start.

Initially forecasting two rate cuts for the year, Kashkari expressed in a WSJ Live interview that current economic indicators might necessitate only a single cut. “I was at two in December,” he remarked. “It’s hard to see, with the data that’s come in, that I’d be saying more cuts than I had in December, or potentially one fewer, but I haven’t decided.”

Kashkari emphasized that Fed’s “base case scenario” no longer includes further rate hikes. He suggested that should inflation persist beyond current projections, Fed’s immediate response would be to maintain the existing interest rates for “an extended period of time.” rather than implementing additional increases.

Fed’s Beige Book report noted “slight to modest” increase in economic activity across various districts. Specifically, eight districts reported slight to modest growth, three observed no change, and one experienced slight softening in economic conditions.

In the realm of consumer spending, the report indicates slight downturn, especially concerning retail goods. This trend is attributed to a “heightened price sensitivity” among consumers, who are increasingly opting to trade down and shift their spending away from discretionary goods. Manufacturing activity remained “largely unchanged”, with disruptions in shipping through the Red Sea and Panama Canal reportedly having minimal overall impact.

The report also highlights persistent price pressures, although some districts observed moderation in inflation. Businesses are finding it increasingly difficult to pass higher costs onto customers, who are becoming more resistant to price increases. Labor market conditions have shown further signs of improvement, with nearly all districts reporting increased labor availability and enhanced employee retention.

Full Beige Book here.

In his semiannual Congressional testimony, Fed Chair Jerome Powell’s prepared remarks highlighted the necessity for Fed to await “greater confidence” in inflation’s sustainable movement towards 2 % target before considering any reduction in policy rates.

Powell acknowledged the policy rate is “likely at its peak” for the current cycle, and it’s appropriate for “dialing back policy restraint at some point this year.” However, he also stressed the “uncertain” economic outlook and noted that the path to 2% inflation is “not assured,”

The Fed Chair warned of the consequences of prematurely or excessively loosening policy, noting that such actions could jeopardize the progress made in inflation control, possibly necessitating “even tighter policy” in the future. Conversely, delaying or minimizing the reduction of policy restraint risks harming economic activity and employment.

Full remarks of Fed Powell here.