Inflation still above target, several Federal Reserve officials signal "not in a hurry to cut interest rates".

Against the backdrop of inflation still above target and the labor market remaining resilient, several Federal Reserve officials have recently released a flurry of signals indicating they are "not in a hurry to cut interest rates," showing that the monetary policy stance is further tilting towards a "wait-and-see, patient" approach. Chicago Fed President, Charles Evans, stated on Tuesday that the Fed should avoid prematurely easing policy amidst stubborn inflation pressures and continued economic expansion. He pointed out at a conference organized by the National Association for Business Economists that core inflation is still hovering near 3%, significantly above the Fed's 2% target. He emphasized that "inflation staying at 3% is not a safe place," and therefore, interest rates should not be cut prematurely until there is clear evidence of inflation easing. Evans' remarks directly counter recent market expectations of "cooling job growth" or "AI boosting productivity" creating space for more aggressive easing measures. He stressed that the current labor market is more stable than weakening, with an unemployment rate of around 4.3% and layoffs remaining low. The combination of "low hiring, low firing" reflects more of a wait-and-see approach by businesses in the face of uncertainty rather than preparing for an economic downturn. Regarding the momentum of economic growth, Evans pointed out that consumer spending will remain the main support until 2025, rather than investments related to AI. Despite wide attention on data center construction, their direct contribution to GDP is limited once imports are factored in. He believed that betting too early on a significant increase in future productivity was not prudent, contrasting with the White House's view that "AI will allow for faster rate cuts without rekindling inflation." A similar cautious stance also comes from the Boston Fed. Boston Fed President, Eric Rosengren, stated on the same day that given recent signs of improvement in the labor market and continued inflation risks, interest rates "are likely to need to be maintained in the current range for a while." She pointed out in a discussion hosted by the Boston Fed that the labor market is showing "an unusually steady state," but more evidence is needed to prove that inflation is moving towards the 2% target. Rosengren emphasized that after a cumulative 175 basis points cut in interest rates over the past year and a half, the current policy rate is mildly restrictive and possibly "already very close to a neutral level," meaning it does not significantly stimulate or suppress economic growth. She believed that in this context, keeping rates unchanged is a reasonable choice. Looking back at the previous policy trajectory, influenced by signs of weakness in the labor market, Fed officials cut rates by 100 basis points by the end of 2024 and a further 75 basis points by the end of 2025. However, officials decided to hold rates steady last month, and unexpected drop in unemployment rate in January provided space to continue maintaining rates unchanged in March. Additionally, Richmond Fed President, Thomas Barkin, noted that while some officials who previously advocated for rate cuts now believe that the risks of job decline have lessened, the persistently high inflation is still concerning. He stated that the Fed faces risks on both ends of its dual mandate, "no one wants stagnating inflation and no one wants further weakening in the labor market." However, the current policy stance is "relatively favorable."