Federal Reserve Chair Jerome Powell delivered the opening speech at an event on Monday local time. He emphasized that the Federal Reserve still needs to gain a deeper understanding of the policies and practices of other governments and central banks, as well as their impact on the US economy and financial markets. The end of the Bretton Woods system in the 1970s fundamentally changed the way monetary policy was implemented. Exchange rate policy is now primarily the responsibility of the US Treasury Department. Policymakers must understand the impact of potentially more volatile fluctuations in the US dollar on American households and businesses. It is noted that Powell did not comment on monetary policy or the economic outlook in his speech this time.
Chicago Fed President Goulsby
Chicago Fed President Austan Goolsbee reaffirmed that the US economy appears to be doing well on the surface. If the uncertainties in trade policy are resolved, the Federal Reserve can continue to cut interest rates. Goolsbee said at a hosting discussion in Davenport, Iowa on Monday: “I still think that if we can get through this difficult period, the dual mandate still looks quite good to me and I think we might be on this path.” Judging from the data released so far, the direct impact is surprisingly small. We don’t know if it will still be like this in the next one or two months. Goolsbee is a voter of this year’s FOMC and his stance leans dovish.
Fed Governor Waller
Fed Governor Christopher Waller said that as he expects tariffs to raise the unemployment rate and temporarily exacerbate inflation, he still believes there is a possibility of interest rate cuts later this year. Waller said that tariffs would raise the inflation rate “in the coming months,” but he supported that when formulating policies, as long as inflation expectations remain stable, the issue of price growth should be regarded as a short-term problem. In a speech prepared for the Bank of Korea’s meeting in Seoul on Monday, he said: “Assuming the actual tariff rate approaches my scenario of lower tariffs, assuming the underlying inflation rate continues to move towards our 2% target, and assuming the labor market remains solid, I will support the ‘good news’ of interest rate cuts later this year.”
Dallas Fed President Logan
Dallas Fed President Lorie Logan said that the Federal Reserve can be patient when assessing inflation and unemployment risks. At the banking conference hosted by the Dallas Fed, Logan said, “We see that the risks of the Fed’s dual mandate seem quite balanced.” This enables us to wait for the data and remain patient. If we obtain crucial information that truly changes the outlook for risk balance, we will be well-prepared to respond. Logan restated her view, which many of her colleagues also agreed with, that it is crucial to ensure that tariff-driven price increases do not trigger more persistent inflation. Some long-term inflation expectation indicators based on surveys have risen, but most officials still believe that inflation expectations are stable. Logan added that policymakers should closely monitor surveys and market-based indicators. She said that market-based measures have been stable all along, but might be distorted due to liquidity issues.
Federal Reserve Policymakers’ Next Meeting
Several officials of the Federal Reserve have indicated that it may take several months to figure out the impact of comprehensive policy changes, especially those related to trade, on the economy. Federal Reserve policymakers will hold their next meeting on June 17-18 to vote on interest rates. According to futures data, investors are betting that they will keep interest rates unchanged at the June and July meetings and then resume cutting rates later this year. Many economists have postponed the call for interest rate cuts until the second half of this year.
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