The three giants of the Federal Reserve speak out together: Confidence is high that inflation is slowing down, and a soft landing for the economy is in sight!

Federal Reserve officials welcomed the lower-than-expected rise in the December Consumer Price Index, believing it indicates that inflation is likely to continue to fall. New York Fed President John Williams pointed out that the deflation process is progressing, but there is still a gap to reach the 2% inflation target, requiring more time to achieve. He also mentioned that recent increases in long-term interest rates reflect both strong new data and market concerns about fiscal policy, other policies, and global developments. Richmond Fed President Tom Barkin stated that the new price data continues the trend of inflation declining to target levels, but policymakers still need to take restrictive measures to ensure inflation smoothly falls back to 2%. Chicago Fed President Austan Goolsbee welcomed the latest consumer price data, believing that these data support his outlook for easing price pressures and remains optimistic for 2025, believing in a soft landing. Specifically, John Williams, New York Fed President, stated during a speech in Hartford, Connecticut: "The process of deflation is underway, but we have not yet reached the 2% target, and it will take more time to achieve this goal." Williams further explained to reporters after his speech that the recent rise in long-term interest rates reflects both strong new data and market concerns about fiscal policy, other policies, and global developments. He emphasized that, although market indicators of inflation compensation have not seen significant fluctuations, this uncertainty seems to have more driving force than changes in monetary policy or basic trajectories of inflation and employment data. Williams also mentioned that estimated prices (especially prices closely related to stock market trends) have been a factor in the recent rise in inflation data over the past few months, a view that aligns with Fed Chair Jerome Powell and board member Christopher Waller. He expects economic growth to slow to about 2% this year, partly due to the impact of a decrease in immigrant numbers. "The direction of monetary policy will depend entirely on the data," Williams emphasized, "The economic outlook remains highly uncertain, especially in potential fiscal, trade, immigration, and regulatory policies." Meanwhile, Tom Barkin, Richmond Fed President, stated at another event held in Annapolis, Maryland, that the new price data continues the trend of inflation declining to target levels. He also warned that policymakers need to continue efforts to accomplish this task. "I believe we still need to take restrictive measures to ensure that inflation can smoothly fall back to 2%," Barkin said. However, Barkin also noted that the economic outlook is fraught with uncertainty, making it difficult to predict the specific implementation of Fed policy. Regarding how President-elect Donald Trump's economic plan will affect Fed actions, he believes it is too early to judge, as many proposals have not been finalized. In terms of the labor market, Barkin expressed optimism about data released earlier this month, showing strong job numbers reaching the end of 2024 and a slight decline in the unemployment rate. Futures markets indicate that investors generally expect Fed officials to keep rates unchanged at the January 28-29 meeting, in line with the median forecast of two rate cuts this year made by Fed officials in December last year. Barkin is not participating in Fed rate decisions this year. He noted after similar remarks at another event on January 3 that the recent rise in long-term bond yields may not necessarily impact Fed policy decisions. He believes that the rise in yields reflects the supply and demand situation in the US Treasury market more than changes in expectations for the Fed's short-term policy path or an increase in overall economic inflation expectations. Chicago Fed President Austan Goolsbee also welcomed the latest consumer price data, which supports his view of easing price pressures. Despite accelerated inflation in broad indicators due to rising energy costs, core price growth in December slowed for the first time in six months. Goolsbee said in a virtual event, "Inflation trends continue to improve. I remain optimistic for 2025, believing that we can continue to grow and achieve a soft landing." At the December meeting, the Fed cut rates for the third consecutive time, lowering the target range to 4.25% to 4.5%. Many Fed officials have expressed that due to a healthy labor market and inflation rates above the 2% target, they expect the pace of rate cuts this year to slow significantly. Goolsbee pointed out that rates are currently still above the neutral rate level, which is a rate level that does not stress or stimulate the economy. Additionally, Goolsbee also discussed the steady rise in housing inflation, which is one of the key factors driving real estate prices up. He also noted that the US has had a seasonal pattern of lower inflation rates in the second half of the year and higher inflation rates in the first quarter for many years. Regarding how policy proposals from President-elect Trump (including new tariffs and immigration restrictions) will affect the economy, Goolsbee stated that if Congress and the President start implementing policies that raise prices, the Fed must consider it, but the overall impact of policies is more important than individual policies. However, Fed officials have not clearly indicated when they might cut rates again. According to the December CPI (Consumer Price Index) report released by the US Bureau of Labor Statistics, the non-seasonally adjusted CPI in December rose to 2.9% year-on-year, rebounding for the third consecutive month to a new high since July 2024, in line with market expectations, up from 2.7%. The core CPI in December recorded a 3.2% year-on-year increase, a new low since August 2024, with market expectations remaining at 3.3%. This data helps ease concerns in financial markets about inflation pressure, which had led to a rise in the yield on the 10-year US Treasury to the highest level in over a year in recent weeks. Investors currently expect the Fed to likely cut the benchmark rate by one percentage point in the last few months of 2024 and then cut it by half a percentage point this year, in line with Fed officials' forecast in December last year. Recent consumer surveys show an increase in inflation expectations, which may be related to concerns about the policy proposals of the incoming Trump administration, such as raising tariffs on imported goods. However, Williams downplays such concerns.He emphasized that investigations and market-based indicators show that inflation expectations remain stable and within the range before the epidemic.On the other hand, other indicators show that the labor market remains strong, which reduces the urgency for Federal Reserve officials to continue cutting interest rates. The monthly employment report released by the US Bureau of Labor Statistics on January 10 showed that non-farm payrolls increased by 256,000 in December, the highest level in 9 months, and the unemployment rate also slightly decreased to 4.1%. It is worth noting that in addition to the widely watched CPI data, Federal Reserve Chairman Jerome Powell and his colleagues are increasingly turning their attention to a relatively less well-known price index - the "market-based" inflation index, which has become another support for their optimistic economic outlook. Different from the potential inflation measure preferred by the Federal Reserve, this index cleverly excludes service projects that have to rely on estimates due to data collection limitations, thus depicting a more unique and realistic recent inflation picture. In the environment of rising bond yields and a cooling market expectation for a rate cut by the Federal Reserve in 2025, Federal Reserve officials frequently mention this alternative index, may indicate that the standards they rely on when considering further monetary policy easing are quietly changing, showing a certain increase in flexibility. Federal Reserve Governor Christopher Waller explicitly explained the rationality of using this market-based index in a speech and expressed support for further interest rate cuts this year. In addition, the latest minutes from the Federal Reserve meeting also revealed that many policymakers share the same view as Waller, believing that factors such as investment portfolio management, investment advice, and various insurance services not included in the calculation of the Personal Consumption Expenditures (PCE) price index based on the market could have pushed recent inflation up to a certain extent, but Federal Reserve officials may not consider these factors as key indicators for future inflation forecasts. At this moment, the US Bureau of Economic Analysis is scheduled to release the PCE inflation data for December on January 31, which will undoubtedly provide a more detailed overview of the inflation situation for the market, further guiding the future direction of Federal Reserve policy.