Federal Reserve Shifts to Cautious Approach, Signals No Rush to Cut US Interest Rates

By Jace Dela Cruz

Feb 08, 2024 03:41 AM EST

The Federal Reserve has indicated a cautious approach towards cutting US interest rates. According to Reuters, the central bank wanted to delay cutting the interest rates until it had more confidence that inflation was down to 2%.

(Photo : JULIA NIKHINSON/AFP via Getty Images)
US Federal Reserve chair Jerome Powell arrives to hold a news conference after a Federal Open Market Committee meeting in Washington, DC, on January 31, 2024.

Federal Reserve Says No Rush in Cutting Interest Rates

Boston Fed President Susan Collins told the Boston Economic Club on Wednesday that policy remains well positioned "for the moment" as "we carefully assess the evolving data and outlook." "As we gain more confidence... I believe it will likely become appropriate to begin easing policy restraint later this year," she added.

Collins said the labor market and the economy's strength suggests that cooling will take some time, and rate cuts must be gradual and systematic when they begin.

Last week, the Fed held the policy rate steady between the 5.25% and 5.5% range, where it has been since July, and according to Fed Chair Jerome Powell, it was unlikely that rate cuts would happen by the next meeting in March as the board was not expected to see sufficient evidence of success in its battle against inflation by that time.

Powell has consistently emphasized that economic data is the driving force of the Federal Reserve's interest rate decisions.

READ NEXT: Donald Trump Accuses Fed Chair Jerome Powell of Making Politically Motivated Decisions to Help Democrats

Fed Expects 3 or More Interest-Rate Cuts in 2024

In December, most Fed policymakers projected three or more interest-rate cuts this year. However, recent data shows continued inflation easing, falling to only 2.6% in December compared with 12 months earlier. 

Minneapolis Fed President Neel Kashkari also expressed a cautious view, suggesting that two to three rate cuts may be appropriate based on current data. He also emphasized the importance of monitoring the labor market and being prepared to adjust rates accordingly.

Richmond Fed President Thomas Barkin remained skeptical about sustained progress on inflation, citing ongoing uncertainties, particularly in the services and rental sectors. He advocated for patience and clarity before making any policy decisions.

Fed Governor Adriana Kugler expressed optimism about continued progress on inflation, citing factors such as slowing wage growth and lower rents. However, she highlighted the need for additional data to confirm this trend and supported maintaining steady rates if disinflation slows. 

READ MORE: Federal Reserve Poised to Cut Interest Rates 6 Times in 2024 as US Economy Slows Down: ING

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