The president of the Bank of the Federal Reserve Dallas, Lorie Logan, said that interest rates could already be close to a neutral level, which could ignore the need for more cuts even if inflation continues to cool.
“What if inflation was approaching 2% in the coming months?“, asked Logan in comments prepared for an event on Thursday in Mexico City. “While that would be good news, I would not necessarily allow the Federal Open Market Committee to cut the rates soon, in my opinion“, said.
An inflation that goes down towards the objective of the Central Bank in an environment characterized by a strong demand and a stable labor market would suggest that the Fed reference policy rate could be close to Neutral, he said Logan. He added that there would be “a lot”Margin of maneuver for cuts in the short term if this will continue.
The neutral rate is the level at which the monetary policy of a central bank does not boost or slow the economy. He said that the Fed would probably lower the rates if the labor market deteriorated.
The monetary policy authorities maintained interest rates without changes in their meeting on January 28 and 29, after cutting them at a complete percentage point in the last three meetings of 2024.
The majority have said that it is now appropriate to slow the rate of rates reductions, and many have indicated the uncertainty about how the economy will respond to Trump administration policies, including tariffs, tax cuts and immigration restrictions .
“Changes in government policies in this area are continuous and the resulting changes in commercial patterns could leave a substantial mark on economic activity“, said Logan. “The central bankers will have to analyze what these changes mean to the perspectives of inflation and employment and for capital flows. ”
Logan participated in a panel at a conference organized by the Bank of International Payments. Next to her were the directors of the Bank of Canada and the central banks of Mexico and Colombia.
The head of the Dallas Fed emphasized the importance of having well anchored inflation expectations, and pointed out that the measures of the surveys on inflationary uncertainties remain high after having increased during the pandemic.
“While the return to the lower limit remains a scenario for which we must prepare, in recent years they show that we must be equally well prepared to achieve our goals when the rates are well above zero and the risks of inflation are on the rise”Logan said.
Modest sales
The president of the Bank of the Federal Reserve of Mineápolis, Neel Kashkari, said that the US labor market had cooled, but remained solid, and that it is likely that interest rates will fall “modestly”In 2025.
“It is still a good labor market ”Kashkari said Friday in an interview in CNBC. “It is not as hot as a year or two ago“He said, and added that”The economy is strong, companies are optimistic. ”
The comments of the Mineapolis Fed Chief occurred shortly after a report that revealed that employers added less jobs in January. At the same time, December payrolls were checked up and the unemployment rate was 4%, the lowest since May, according to the data of the Office of Labor Statistics. The average per hour salary increased 0.5% compared to December, the largest monthly increase since August.
Kashkari joined other Fed colleagues who have expressed caution on the perspectives of the fees due to the uncertainty introduced by the Trump administration.
“We are in a very good position to sit here until we have much more information about the Tariff Front, on the Migration Front, on the Fiscal Front”He said. “I would expect the federal fund rate to be slightly lower at the end of this year”
The monetary authorities held interest rates without changes in their meeting on January 28 and 29, after cutting them a percentage point in the last three meetings of 2024. Most officials have said they support to reduce the rhythm of CUTTINGS THIS YEAR, Since inflation has not yet reached its 2% objective and the labor market is still healthy.
The median estimates of 19 officials was in December only two rates cuts this year. Uncertainty about how Trump administration policies, including immigration restrictions, tax cuts and tariffs, could affect growth and inflation have reduced market bets to Fed rates reductions by 2025.
Source: Gestion
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