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US Fed official warns against cutting rates too soon

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It would be a “mistake” for the US Federal Reserve to start cutting interest rates too soon, despite its recent progress against inflation, a senior Fed official said Tuesday.

The Fed has rapidly raised interest rates to a 23-year high as it looks to reduce inflation towards its long-term target of two percent.

Policymakers at the US central bank signaled late last year that they have now begun talks on when it would be appropriate to start lowering the Fed’s benchmark lending rate, sparking market optimism that cuts could come as soon as March.

But in recent days, the Fed chair Jerome Powell has repeatedly indicated that a cut in March is highly unlikely, causing financial markets to reassess when they expect to start lowering rates.

On Tuesday, Cleveland Fed president Loretta Mester, who is a voting member of the Fed’s rate-setting committee this year, joined Powell in pouring cold water on the idea of imminent cuts.

“It would be a mistake to move rates down too soon or too quickly without sufficient evidence that inflation was on a sustainable and timely path back to two percent,” she told a conference in Ohio in prepared remarks.

She said the Fed’s rate-setting committee “does not expect it will be appropriate” to start lowering rates until it has “gained greater confidence” that inflation is sustainably on the right track.

With a March rate cut now seen as highly unlikely, futures traders have assigned a possibility of 65 percent that the Fed will begin interest rate cuts by the following decision on May 1, according to AFP analysis of data from CME Group.

If the US economy continues to evolve as expected, the Fed is likely to have the confidence to “begin moving rates down” later this year, Mester said.

“My base case is that we will do so at a gradual pace so that we can continue to manage the risks to both sides of our mandate,” she added.

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AFP

Agence France-Presse (AFP) is a French international news agency headquartered in Paris, France. Founded in 1835 as Havas, it is the world's oldest news agency.







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