– Daly, Goolsbee, Collins, Bostic, Bowman All in Cautious ‘Wait and See’ Mode
By Steven K. Beckner
(MaceNews) – Federal Reserve officials have been united in supporting the Federal Open Market Committee’s decision to leave interest rates unchanged when the Fed’s rate-setting body met last Wednesday, but their seeming unanimity tends to fade into uncertainty and equivocation as they contemplate the future path of monetary policy.
For now, the common theme of officials who have spoken since the FOMC meeting is caution.
These Fed officials haven’t closed the door on cutting the federal funds rate again at some stage, but they have largely echoed Chair Jerome Powell’s assertion that there’s “no hurry” to do so.
They have expressed a degree of confidence that inflation will ultimately head down to the Fed’s 2% target but have agreed with Powell that its course is apt to be ‘bumpy.”
While further disinflation would favor eventual rate cuts, officials are unsure about how long it will take inflation to get back to the Fed’s 2% target. At the same time, their comments about the “maximum employment” side of the Fed’s “dual mandate” have been tinged with wariness. They see labor markets as “solid” presently, but they intend to be watchful for signs of weakness.
What’s more, the officials are concerned about heightened “uncertainty” in the face of the new Trump administration’s trade, immigration, tax, and regulatory policies, which have been roiling financial markets.
So, while the consensus that propelled the FOMC to 100 basis points of easing from mid-September to mid-December of last year, then to pause early in the new year, remains intact, but the size and timing of future rate cuts are in doubt.
San Francisco Federal Reserve Bank President Mary Daly said Tuesday the Fed is “in a good position” to be “careful and thoughtful” and to “take our time” in the context of an economy with “plenty of momentum” and still excessive inflation.
Chicago Fed President Austan Goolsbee, an FOMC voter this year, is generally considered to be a much more “dovish” Fed official, but he too counseled being “more careful” and “more prudent” on Monday.
Likewise, voting Boston Fed President Susan Collins, who is also usually thought of as being on the “dovish” end of the policy spectrum, advocated being “patient (and) careful” and said “there’s no urgency for making additional adjustments,” although she suggested more easing will become appropriate at some point.
Atlanta Fed President Raphael Bostic, also speaking Monday, described himself as being in a “wait and see” posture. Eventually, he said, the funds rate needs to be lowered further to get closer to “neutral,” but said the FOMC may be “waiting for a while” before cutting rates again.
Bowman, one of the more hawkish FOMC members, expressed more concern than most about elevated inflation and suggested there may be no need for further rate cuts, but for now she too was willing to take a “wait and see” approach.
The FOMC unanimously agreed last Wednesday to leave the funds rate in a target range of 4.25% to 4.5%, while continuing to shrink the Fed’s balance sheet. The Committee’s policy statement left the door open to a resumption of rate cuts at some point, although its policy statement was perceived as being slightly more “hawkish” in excising its former assertion that “inflation has made progress toward the Committee’s 2% objective.”
Powell said afterward the FOMC had concluded that, after three straight rate cuts, “it’s appropriate we do not be in a hurry to make further adjustments.” Since the meeting, officials have continued to speak in a similarly tentative vein.
Daly, a mainstream official who is not voting on the FOMC this year, said, “we have to be careful, thoughtful .…”
“We can take our time to look at what’s coming in….,” she told the Commonwealth Club World Affairs of California. “We don’t’ need to be preemptive …. we can take our time to judge.”
In fact, she warned that prejudging the impact of tariff, immigration, regulatory and tax policy changes could be treacherous, saying, “if you take preemptive action … you can end up making a policy mistake.”
Instead, she said the Fed “needs to assess the net effects …” of policy changes as they unfold. It must assess “the scope, magnitude and timing of changes … that’s true of tariffs, immigration, deregulation or taxes….”
Daly put heavy emphasis on inflation control, since “the economy has a lot of momentum” and labor markets are “solid.”
“We’ve got to get inflation down…,” she declared. “We definitely want to get inflation back to target …. that’s where 100% of my energy is…”
Daly said the FOMC is “in a good position to wait and see …,” but she added, “I guarantee that if we have inflation printing above target, that will be our main focus …. It’s extremely consequential if inflation is above target ….”
She suggested that “if it takes more than the rest of this year” to get inflation back to target, the FOMC may have to keep monetary policy restrictive for longer.
Though usually a more dovish policymaker, Goolsbee’s comments did not differ greatly.
“Now we’ve got to be a little more careful and more prudent of how fast rates can come down because there are risks that inflation is about to start kicking back up again ….,” he said on American Public Media’s Marketplace program.
As for appraising the economic impact of higher tariffs, he said, “It’s going to be hard to tell the difference between a sign of economic overheating and a sign of — this is just a temporary result of an escalating trade war, or some other geopolitical thing that’s happening.”
Goolsbee said the FOMC will be “trying to sniff out what’s the through line and we might have to slow the pace of getting to the settling point when we have that much uncertainty.”
Collins, for now, agreed with the “wait and see” approach.
“It’s really appropriate for policy to be patient, careful, and there’s no urgency for making additional adjustments, especially given all of the uncertainty, even though, of course, we’re still somewhat restrictive,” she said on CNBC.
Collins left the door open to further rate cuts, saying “At some point I certainly would see additional normalization in terms of what the policy stance is,” But she gave no sense of when that might come, saying “the data is going to have to tell us.”
Bostic, who is not voting on the FOMC this year, was just as cautious, if not more so when asked about interest rates by his predecessor Dennis Lockhart.
“Here’s what I would say on this: I want to see what the 100 basis points of reductions we did at the end of last year translates to in terms of the economy, and depending on what the data are, it might mean that we’re waiting for a while,” he said at the Atlanta Rotary Club.
Bostic said he had greater certainty about the economic outlook at the end of last year, but said “the amount of uncertainty we have today is greater than that, and I want to be cautious.”
“I don’t want to have our policy lean in a direction, making an assumption that the economy is going to evolve in a certain way, and then I have to turn and unwind,” he continued. “So I’m really taking the posture that I’m going to have to wait and see, and there are a lot of things I’m going to have to wait and see about before I’ll feel confident that I know which direction policy can go.”
“My general outlook is that we’re going to get to target and we want to get our rate to neutral, and neutral I think is lower than where we are now, somewhere in the 3 to 3 1/2 % level,” he went on. “But how long should it take for us to get there actually depends on what happens – on how this economy evolves over the next 12 to 18 months.”
“And there’s enough uncertainty that I’m not really confident today that I can walk in any direction,” he added.
So, Bostic said “I’m prepared, I’m comfortable, I’d be very satisfied to wait for a while, and that would be fine. But it depends on what happens, right, and if things happen and evolves so it’s very clear where the economy is going, I’ll be content to move.”
Bowman, one of the more “hawkish” FOMC members, said she had supported the FOMC’s decision to stay on hold “because, after recalibrating the level of the policy rate towards the end of last year to reflect the progress made since 2023 on lowering inflation and cooling the labor market, I think that policy is now in a good place to position the Committee to pay closer attention to the inflation data as it evolves.”
She added that “the current policy stance also provides the opportunity to review further indicators of economic activity and get clarity on the administration’s policies and their effects on the economy. It will be very important to have a better sense of the actual policies and how they will be implemented, in addition to greater confidence about how the economy will respond.”
Bowman, who voted for the Nov. 7 and Dec. 18 25 basis point rate cuts after dissenting against the initial 50 basis point cut on Sept. 18, made clear she remains uncomfortable with the level of inflation.
“The rate of inflation declined significantly in 2023, but it slowed by noticeably less last year….,” she said. “Progress has been slow and uneven since the spring of last year mostly due to a slowing in core goods price declines.”
She was less concerned about the labor market, saying it “appears to have stabilized in the second half of last year, after having loosened from extremely tight conditions …. The labor market no longer appears to be especially tight but wage growth remains somewhat above the pace consistent with our inflation goal.”
Bowman recommended patience: “(G)iven conflicting economic signals, measurement challenges, and significant data revisions, I remain cautious about taking signal from only a limited set of real-time data releases.”
She said she expects that “inflation will slow further this year,” but said she “continue(s) to see greater risks to price stability, especially while the labor market remains near full employment.”
The officials’ comments come in wake of a less-than-encouraging inflation report from the Commerce Department on Friday. Its price index for personal consumption expenditures (PCE), the Fed’s preferred inflation gauge rose 2.6% from a year earlier in December, two tenths higher than in November. The more closely watched core PCE was up 2.8% for the second straight month — well above the Fed’s target.
Meanwhile, the labor market has remained “solid” in the words of Powell and others but has shown signs of cooling. Most recently, Tuesday, the Labor Department’s JOLTS survey found a decline to 7.60 million in job openings from 8.156 million in November.
GDP growth slowed last year to 2.5% — still considerably faster than the Fed’s 1.8% estimate of the economy’s growth potential.
On net, such data have left policymakers hopeful and hesitant about continued credit easing.