Inflation Still the Key to Rate Cuts
A senior Fed official recently said that while open to the possibility of rate cuts this year, any move will depend on clear signs that inflation is falling toward the Fed's target. He noted that the downward trend in inflation has stalled, especially in core services prices excluding housing, creating uncertainty for policymakers.
Watch for Premature Easing Risks
He warned that cutting rates too early based only on expectations of future productivity gains could overheat the economy and worsen inflation. The Fed must maintain a restrictive stance until there's solid evidence that price pressures are truly easing.
Labor Market Stays Resilient
Regarding the job market, he said the current pattern of low hiring and low layoffs is driven by economic uncertainty. Although recent Supreme Court rulings on tariffs may cause short-term volatility, he stressed that both the broader economy and labor market remain resilient.
Monetary Framework Needs Review
On the Fed's balance sheet, he noted that any return to a scarce reserves system would require further analysis of its pros and cons. This echoes earlier comments from other officials, suggesting that adjusting the monetary framework will be a key topic moving forward.