2024-03-26 09:49:00
Investing.com – Officials said Monday they remain confident that U.S. inflation will ease, with housing prices in particular expected to help moderate the main pace of price increases, but they also acknowledged an increased sense of caution.
Fed Governor Lisa Cook said at an event hosted by Harvard University that she supported a “cautious” approach when easing monetary policy. Noting that although housing services inflation remains very high, the current low rate of increase in new leases indicates that it will continue to decline.
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In an interview with Yahoo Finance, Chicago Fed President Austin Goolsbee said the persistence of housing price inflation still surprised him, but he also felt it would subside.
Noting that progress in inflation overall has slowed this year, after a steady decline in 2023, Goolsby said that “the main puzzle has been around housing,” a key item in the basket of consumer spending that accounts for a large share of recent headline inflation readings.
“We have to get housing inflation closer to where it was before the pandemic,” he said. “I think market rents are showing there is progress to be made, but we haven’t seen that yet in the aggregate data.”
The Fed last week kept its benchmark overnight interest rate steady in a range of 5.25%-5.50%, and new quarterly economic forecasts showed the monetary policymaker still expects three rate cuts of a quarter of a percentage point this year.
Goolsbee said he was among that group that expected three cuts, showing continued confidence among Fed policymakers that inflation will fall enough in the coming months to move forward with monetary policy easing.
But the rhetoric and substance of the debate have begun to change since a steady decline in inflation last year gave way to a slower pace of progress.
“We’re in a bit of an uncertain period,” Goolsbee said, though he said overall he agreed with Fed Chairman Jerome Powell’s description last week that the overall “story” of persistently low inflation has not changed.
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But others began to have their doubts.
Speaking to reporters late Friday afternoon, Atlanta Fed President Rafael Bostic said he was “less confident” than he was in December about continued progress on the inflation front, and he cut his rate forecast from two expected cuts by a quarter of a percentage point. This year to only one reduction.
Although investors are still betting that the Fed will start cutting interest rates in June, monetary policymakers’ forecasts released last week showed a clear drift toward monetary easing this year.
Although the average has stayed the same, it has barely done so, with nine of the 19 policymakers seeing a higher interest rate at the end of 2024 than the 10 who set the average. In addition, policymakers’ risk assessments have shifted slightly toward concerns about higher inflation rates.
New inflation data is scheduled to be released on Friday. The PCE price index excluding food and energy, which the Fed considers a good indicator of core inflation, rose 2.8% in January. Economists expect it to rise at the same pace in February.
While Lisa Cook did not outline her expectations for monetary policy for this year, she agreed that the Fed should move cautiously when it considers easing monetary policy.
“The risks to achieving our employment and inflation targets are moving towards a better balance,” she said. “However, fully restoring price stability may require a cautious approach to easing monetary policy.”
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