By Jeffry Bartash
Fed Governor Offers Few Indications on Timing or Size of Rate Cuts
Federal Reserve Governor Lisa Cook said Monday that the central bank needs to take a "careful approach" in deciding when to cut interest rates, but gave few clues about the timing or size of any reduction.
The Federal Reserve last week left a key U.S. short-term interest rate unchanged, while signaling it was still likely to make three rate cuts later this year.
In a speech to Harvard students, Cook noted that inflation has slowed and the labor market is "normalizing." A normal labor market is one in which supply and demand for labor are balanced and wages rise more slowly.
Cook also said the cost of rent, a key source of recent inflation, is declining. This should pave the way for a further slowdown in prices in the coming months.
Still, Cook emphasized, as he has in other speeches, that the Federal Reserve must proceed with caution. If you cut rates too soon, it could be harder to remove inflation from the economy, he said. Waiting too long could increase the risk of a recession.
"The path to disinflation has, as expected, been bumpy and uneven, but a careful approach to further policy adjustments can ensure that inflation sustainably returns to 2% while striving to maintain a strong labor market." Cook said.
The Federal Reserve raised interest rates in 2022 and 2023 to quell the worst US inflation in four decades. It is now evaluating when to cut rates in light of a sharp slowdown in inflation.
To complicate matters, there has been an apparent pickup in inflation in early 2024. Federal Reserve Chairman Jerome Powell suggested last week that the return of price pressures could be a statistical anomaly or prove temporary.
Fed officials appear almost evenly divided between those who prefer two or fewer rate cuts this year and those who expect three or more.
-Jeffry Bartash
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03-25-24 1133ET
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