Philadelphia Fed President Patrick Harker did not dismiss the possibility of a rate cut as early as May meeting. But he emphasized the importance of observing “a couple more months” of economic data before making such a decision. “I think we’re close,” Harker stated overnight, advocating for patience by suggesting, “just give us a couple meetings.”

“We may be in the position to see the rate decrease this year,” he remarked. But he also tempered expectations with a reminder of the need for deliberate consideration: “But I would caution anyone from looking for it right now and right away. We have time to get this right, as we must.”

Harker acknowledged the challenges inherent in the disinflation process, describing it as “bumpy and uneven at times.” This acknowledgment underscores the necessity for the Fed to demand “more evidence” before altering its policy course, aiming to discern genuine economic trends from the “vagaries of monthly data.”

In contemplating the initiation of policy easing, Harker advocated for a cautious approach: “let’s start on a steady, slow reduction, because that to me minimizes risk.”

Fed Vice Chair Philip Jefferson’s speech today offered insights into the monetary policy outlook and identified key risks in the coming months. He suggested that, assuming the economy develops as anticipated, “it will likely be appropriate to begin dialing back our policy restraint later this year.”

He highlighted three principal risks that warrant close monitoring. First, consumer spending could be “more resilient” than expected, which could inadvertently halt progress on inflation. Second, the possibility of employment weakening as the factors currently bolstering economic growth begin to wane. Jefferson addressed geopolitical risks, specifically the possibility of escalating conflicts in the Middle East and their broader impact on commodity prices, such as oil, and global financial markets.

Overall, Jefferson remained “cautiously optimistic” on the progress on inflation, and emphasized the importance of considering the “totality of incoming data” in shaping Fed’s policy decisions.

Full speech of Fed’s Jefferson here.

The latest FOMC minutes reveal a predominant caution against premature easing of monetary policy. The document underscores a consensus among “most participants” over the potential risks of reducing interest rates too hastily, expressing a preference for delaying cuts rather than risking the need to reverse course.

During the FOMC meeting held on January 30-31, the discussion emphasized that participants did not anticipate it being appropriate to lower the federal funds rate target range without “greater confidence” that inflation was on a sustainable path back to 2% target. The determination of the future policy rate path was tied closely to “incoming data, the evolving outlook, and the balance of risks.” .

Although the balance of risks towards employment and inflation goals was seen as “moving into better balance”, participants remained “highly attentive to inflation risks”. While upside risks to inflation have “diminished”, inflation remains above target. This vigilance is framed within a broader context of concern that “progress toward price stability could stall”, particularly in scenarios where demand strengthens unexpectedly or supply-side improvements falter.

The predominant narrative within the FOMC leans towards a cautious approach to policy easing, with “most participants” underscoring the perils of “moving too quickly” and the importance of a meticulous evaluation of incoming data to ascertain whether inflation trends align with the target sustainably. In contrast, only “a couple of participants” raised concerns about the economic downsides of an “overly restrictive stance” persisting for an extended period.

Full FOMC minutes here.

Richmond Fed President Thomas Barkin characterized the stronger-than-expected inflation data for January as a significant challenge.

At an interview, Barkin acknowledged that the recent date “definitely did not make things easier” for Fed. Instead, “it made things harder.” Nevertheless, he was still cautious about overemphasizing the significance of these figures, citing “seasonal measurement issues” that might distort the month’s data.

Barkin also emphasized that the US States is “on the back end of its inflation problem.” The critical question is “how much longer it will take” for inflation to align with Fed’s target.