The minutes from the Fed’s April 30-May 1 meeting were released last week, which showed that members had growing concerns about inflation. This wasn’t a surprise, given that the meeting followed a string of reports showing inflation was more persistent than expected in the first quarter of this year. Since the Fed met, reports have shown cooler inflation as well as slower job growth, a rising unemployment rate and flat retail sales.
Last week also brought a parade of Fed speakers that included notable comments from Fed Governor Christopher Waller, who echoed several of his colleagues when he said, “In the absence of a significant weakening in the labor market, I need to see several more months of good inflation data before I would be comfortable supporting an easing in the stance of monetary policy.”
An easing of monetary policy would bring cuts to the Fed’s benchmark Fed Funds Rate, which is the overnight borrowing rate for banks.
What’s the bottom line? Remember the Fed has been working hard to tame inflation, hiking the Fed Funds Rate eleven times between March 2022 and July 2023. These hikes were designed to slow the economy by making borrowing more expensive, so the demand for goods would be lowered, thereby reducing pricing pressure and inflation.
While inflation was making good progress lower late last year, readings throughout the first quarter of this year were unexpectedly high, causing the Fed to hold the Fed Funds Rate steady as they take a more patient approach to rate cuts than initially thought.
However, as Waller’s comments suggest, a sharp rise in the unemployment rate (which has been in a narrow range between 3.7% and 3.9% since August) could also impact the timing for rate cuts, given the Fed’s dual mandate of price stability and maximum employment.