Some Fed presidents say now's the time

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Federal Reserve Board Vice Chair Richard Clarida echoed the comments Chair Jerome Powell made on Wednesday, suggesting the panel will cut interest rates this year.

“The case for providing more accommodation has increased,” Clarida said in an interview on Bloomberg Television.

He spoke of “elevated uncertainty” and “crosscurrents” that need to be monitored, and assured listeners the Fed will “act as appropriate” to keep the economic expansion alive.

Other members of the Federal Open Market Committee see things differently.

In an online essay Federal Reserve Bank of Minneapolis President Neel Kashkari, who does not have a vote this year, wrote that he “advocated for a 50-basis-point rate cut,” plus “a commitment not to raise rates again until core inflation reaches our 2% target on a sustained basis.”

With no visible inflationary pressure and slack in the labor market, Kashkari said, "an aggressive policy action such as this is required to re-anchor inflation expectations at our target.”

When Kashkari was a voter on the panel in 2017, he consistently voted against rate hikes. Now, he said, “the job market has slowed, wage growth has flattened, inflation has continued to come in below our 2% target, inflation expectations have fallen, and the yield curve has inverted.”

Economists at the Minneapolis bank see long-term inflation running about 1.7%. While that “may seem like a small miss from our 2 percent target," Kashkari said. "it means we will have less ammunition to respond to a future downturn because real interest rates, net of inflation, drive economic activity.”

Federal Reserve Bank of St. Louis President James Bullard issued a statement explaining his dissension on the FOMC vote and why he believes a 25 basis point rate cut is appropriate.

With personal consumption expenditures falling “substantially since the end of last year,” and other inflation expectation guides also weakening, it “indicate[s] an expected inflation rate substantially below the Committee’s target.”

Further, Bullard said, he doesn’t see the forces muting inflation as “solely transitory.” And despite historically low unemployment, “there is little evidence that low unemployment poses a significant inflation risk in the current environment.”

The economy is expected to slow this year and “uncertainties about this outlook have recently increased.”

As such, Bullard said, “I believe that lowering the target range for the federal funds rate at this time would provide insurance against further declines in expected inflation and a slowing economy subject to elevated downside risks. Even if a sharper-than-expected slowdown does not materialize, a rate cut would help promote a more rapid return of inflation and inflation expectations to target.”

Existing home sales
Existing home sales rose 2.5% in May to a seasonally adjusted annual rate of 5.34 million, although sales fell 1.1% from a year earlier.

Lower mortgages rates were cited as one reason for the climb. While the number of houses on the market rose to 1.92 million from 1.83 million the month before, translating into a 4.3-month supply, which is still close to historical lows.

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Monetary policy Economic indicators Housing Richard Clarida Neel Kashkari James Bullard Federal Reserve Federal Reserve Bank of Minneapolis Federal Reserve Bank of St. Louis FOMC
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