In an FT interview, San Francisco Fed President Mary Daly said , “there’s good news on the month-to-month data that consumers and business are getting some relief, but inflation remains far too high and not near our price stability goal,”

“This is why we don’t want to declare victory on inflation coming down,” she said. “We’re not near done yet.”

She reiterated her view that rise should rise to just under 3.5% by the end of the year. And her baseline for September FOMC meeting is a 50bps hike.

“There is a lot of uncertainty, so leaping ahead with great confidence that [a 0.75 percentage point rate rise] is what we need and being prescriptive would not be optimal policy,” she said.

Boston Fed President Susan Collins emphasized the need for “sustained, broadening signs of progress” in inflation reduction before contemplating any “methodical” adjustments to interest rate policy.

“As we gain more confidence in the economy achieving the Committee’s goals… I believe it will likely become appropriate to begin easing policy restraint later this year,” she stated in a speech overnight.

She advocates for a gradual approach to interest rate adjustments, allowing for “flexibility to manage risks, while promoting stable prices and maximum employment.”

Collins also highlighted the resilience of the US economy, as evidenced by recent GDP and labor market data, suggesting that the anticipated slowdown in economic activity “may take some time”.

“The path the economy takes toward the Fed’s mandated goals may continue to be bumpy and uneven, and we should not overreact to individual data points,” she advised.

A critical factor in Collins’s assessment is wage dynamics, with a specific interest in wage trends that align with long-term price stability. While acknowledging that not all economic indicators might perfectly converge, “seeing sustained, broadening signs of progress should provide the necessary confidence I would need to begin a methodical adjustment to our policy stance.”

The most important parts of the new proections are firstly, median fed funds rate projection is unchanged at 3.4% in 2021. That is, Fed expects to stop after three hikes in 2019 and one more in 2020. However, secondly, the longer run federal funds rate was raised from 2.9% to 3.0%. That is, the neutral rate was somewhat lifted.

All in all, Fed’s new projections clearly show that the impact of fiscal stimulus of tax cuts and others would fade rather quickly, with notable fall in GDP growth in 2021 and rise in unemployment rate too. With core inflation holding at 2.1% in 2021, there is no need for further rate hike.

GDP projections for 2018 and 2019 are raised to 3.1% and 2.5% respectively. For 2020, GDP projection was kept unchanged at 2.0%. For 2021, it’s forecast to slow further to 1.8%.

Unemployment rate projection for 2018 was raised from 3.6% to 3.7%. For 2019 and 2020, it’s kept unchanged at 3.5%. And unemployment rate is expected rise back to 3.7% in 2021.

Core PCE projection was unchanged through out, at 2.0% in 2018, 2.1% in 2019, 2020 and 2021.