By Ann Saphir and Howard Schneider
(Reuters) -President Donald Trump says that tame inflation means the Federal Reserve should already be reducing its policy rate, but inside the U.S. central bank the idea has little traction, with only two Fed policymakers to date embracing the possibility of a rate cut at the central bank’s next meeting in July.
The rest clearly aren’t convinced.
“We’re only going to have really one more month of data before the July meeting,” Boston Federal Reserve Bank President Susan Collins told Bloomberg News in an interview on Thursday. “I expect to want to see more information than that.”
It’s not that Collins doesn’t expect to cut rates; in the same interview she signaled she could see one, possibly more, quarter-point interest-rate cuts this year. The decision will depend largely on how much and how fast Trump’s tariffs push up on inflation and unemployment, as she and many of her colleagues have said they expect to happen.
But with the unemployment rate at a healthy 4.2% and the job market cooling but still solid, Collins and most of her colleagues feel the Fed has time to keep policy on hold.
“Monetary policy is well positioned to allow us to wait and see how economic conditions unfold,” Fed Governor Michael Barr told a community development conference at the Cleveland Fed on Thursday, a phrasing that Fed Chair Jerome Powell and several other Fed policymakers have also used.
San Francisco Fed President Mary Daly on Thursday told Bloomberg TV that her “modal outlook has been for some time that we would begin to be able to adjust the rates in the fall, and I haven’t really changed that view.”
The Fed targets inflation at 2%, by the 12-month change in the personal consumption expenditures price index. By that measure inflation had cooled to 2.1% in April, and economists expect a government report tomorrow will show it reversed course and rose to 2.3% in May.
Economists and Fed policymakers alike expect it to rise further this year as businesses pass higher import costs onto buyers of their wares and services. Powell says he expects those increases to be meaningful.
Powell didn’t rule out that this forecast could be wrong; but he did suggest central bankers won’t know that until after the June and July inflation data are in hand.
Given the lags in government data, that information won’t be available until the tail end of summer, after the Fed’s July 29-30 meeting. The Fed would also have just one monthly jobs report before that meeting.
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