Richmond Fed President Thomas Barkin highlighted the divergence between expectations and reality of US monetary in a speech today. He noted, “Most anticipated we would be cutting rates by now, either because we returned inflation to target, or perhaps because the economy took a turn for the worse. Yet, in contrast to the European Central Bank, that has not yet been the case.”

Barkin elaborated on the unique challenges facing the US economy, emphasizing that monetary policy operates with “long and variable lags.” He suggested that these lags might be longer than expected due to factors such as labor hoarding, excess savings, delayed exposure to interest rate hikes, and newfound pricing power among businesses.

Furthermore, Barkin raised the possibility that the Fed’s rate hikes might not be constraining the economy as much as anticipated. He pointed to the concept of r-star, the neutral real rate of interest, suggesting it might have shifted to a higher level. “It is too soon to tell, but there’s one way to find out: Proceed deliberately while keeping a close eye on the real economy. And that’s what I am doing,” Barkin stated.

Full speech of Fed’s Barkin here.

In a speech overnight, Fed Governor Michelle Bowman reiterated that Fed is “still not yet at the point where it is appropriate to lower the policy rate.” She emphasized that several upside risks to inflation persist, making it premature to consider rate cuts.

Bowman highlighted several concerns impacting inflation. She noted that further improvements on the supply side are unlikely, and geopolitical developments could disrupt global supply chains, adding to inflationary pressures. Additionally, loosening in financial conditions might increase demand, potentially stalling disinflation progress. Furthermore, increased immigration and continued labor market tightness could lead to persistently high core services inflation.

Bowman stressed that monetary policy is “not on a preset course.” She remains willing to raise interest rates if incoming data suggest that progress on inflation has stalled or reversed.

Full speech of Fed’s Bowman here.

In an essay, Atlanta Fed President Raphael Bostic anticipates that gradual slowdown in the labor market and overall economic activity will lead to inflation decreasing to the target level of 2% by 2025, or slightly later.

Bostic mentioned that instead of maintaining the federal funds rate until the inflation target is achieved, he would prefer to start reducing the policy rate once there is clear evidence that inflation is on a definitive path towards the 2% objective.

Taking all factors into account, Bostic stated, “I continue to believe conditions will likely call for a cut in the federal funds rate in the fourth quarter of this year.”

However, he emphasized flexibility, indicating that he is “not locked into any particular policy path” and that adjustments will be based on evolving data and economic conditions.

Bostic acknowledged the possibility of varying scenarios, including more cuts, no cuts, or even a rate increase, depending on how the situation develops. “I will let the data and conditions on the ground be my guide,” highlighting the importance of data-driven decision-making in monetary policy.

Full essay of Fed’s Bostic here.