Fed officials say there is „work to be done” on inflation before cutting rates

Fedin Daly stresses 'patience' message on rate cut timing

9 hours 39 minutes ago

Mary Daly, president of the Federal Reserve Bank of San Francisco and a member of the central bank's policy committee, told the National Association's conference that more time and data are needed to ensure inflation is truly subdued before the Federal Reserve cuts its key interest rate. Friday for business economics.

His comments stuck with a line repeated by other central bank officials in recent weeks: inflation is on a flat path below the central bank's target of 2% annual rate—but not yet—and the economy and labor market are resilient, and they are in no rush to cut interest rates.

„The economy is healthy, price stability is in sight, and there is still work to be done,” he said.

Daley and other members of the Federal Open Market Committee are at a critical juncture in their effort to bring the economy to a „soft landing” (rather than a crash) from hyperinflation in late 2021. Since March 2021, the central bank has curbed inflation by raising its key interest rate, and since July it has held it at a 23-year high, raising borrowing costs for all types of debt, which discourages spending and slows economic growth.

Daly noted progress against inflation. The central bank's preferred rate of inflation rose 2.6% in December to 7.1% in June 2022.

„For households and businesses, the treadmill of ever-increasing inflation slowed,” he said.

However, he said there is a risk that the forces that have dampened inflation—such as increasing labor productivity—could reverse, and disruptions such as conflicts in the Middle East could push inflation back up.

READ  Central bank rate cuts can affect the global economy in two ways

Daley said the Federal Open Market Committee's December forecast of three quarter-point rate cuts through 2024 was „reasonable.”

Fed's Bostic: Inflation on track for summer rate cut, more „work to be done” on inflation

11 hours 42 minutes ago

Pointing to still higher inflation readings, Atlanta Fed President Rafael Bostic said today that while price pressures should continue to moderate in some categories, the trajectory of inflation appeared to point to the Federal Reserve starting to cut interest rates „in the summer.”

Bostick said he sees only two rate cuts this year CNBC The downward path of inflation will be „a bit flat” and there will be „work to be done”, citing the rise in recent inflation reports such as today's wholesale prices data.

He reiterated the sentiment of other central bank officials that a strong economy gives the central bank time to wait for more data on inflation.

For example, the Dallas Federal Reserve's trimmed mean measure of inflation has been 2.6% over the past six months. A third of the basket of goods measured for the Personal Consumption Expenditures (PCE) inflation index still showed a 5% price increase.

„So when you have a lot of price swings, it's hard to imagine you're still there,” he said of officials' confidence that inflation will continue to hit the 2% target.

–Terry Lane

Barr says banking supervisors are 'closely focused' on CRE risks

12 hours 50 minutes ago

Bank supervisors are „closely focused” on commercial real estate (CRE) risks that put pressure on some financial institutions closely tied to the industry, said Michael S. Barr told a banking conference this morning. .

Federal Reserve regulators are looking at factors such as how banks handle commercial real estate loans, how they measure and monitor risks, what steps are taken to mitigate risks, how these risks are communicated to management, Barr said. Financially prepared for future consumer real estate losses.

In addition, Barr pointed to the Fed's report on the collapse of Silicon Valley banks last year, noting that regulators „continue to evaluate” whether to temporarily raise capital requirements for banks that have trouble managing their risks.

In his remarks at the Columbia Law School Banking Conference, Barr reiterated a concern among central bank officials that the weak market for office space is hurting the commercial real estate sector, which helps prop up many banks' balance sheets. Recently Moody's New York Community Bancorp Inc. ( NYCB ) was downgraded by concerns about its exposure to commercial real estate, which was weighed down by higher interest rates and trends in working from home.

–Terry Lane

Consumer sentiment inches high; Inflation concerns persist

14 hours ago

Consumer sentiment improved in February, but not as much as economists had predicted, while inflation expectations rose to reflect recent moves in inflation.

The University of Michigan's preliminary February results for consumer sentiment came in at 79.6 from a reading of 79.0 last month, up 19% from the same month last year. However, economists expected the index to move up to 80.0. A largely flat move from last month followed sentiment gains over the past two months.

„The fact that sentiment has not lost any ground this month suggests that consumers remain optimistic about the economy, confirming substantial improvements in various aspects of the economy in December and January,” said Jon Hsu, director of the survey.

A closer look at the data also showed that consumers expected year-on-year inflation to rise to 3.0% in the February survey, up from 2.9% last month. There was a higher-than-expected consumer price index reading this week as other inflation gauges proved prices stickier than expected. Short-term inflation expectations were in line with pre-pandemic levels.

Federal Reserve officials have said they follow consumer inflation expectations as part of the decision-making process in setting interest rate levels.

–Terry Lane

Fewer new homes are being built than expected

15 hours 59 minutes ago

New home starts fell sharply in January after rising over the past four months, according to Census Bureau numbers on Friday.

New home starts were 14.8% fewer in January than in December, down from an annual rate of 1.33 million. That number was down 0.7% from a year ago in January and was less than the 1.45 million economists had expected.

Building permits, a precursor to housing starts, also fell in January, falling less than economists had expected. An annualized 1.47 million building permits were issued for single-family homes in January, down 1.5% from December's revised rate and up 8.6% from January 2023.

Housing starts are being watched closely as fewer people are selling their existing homes.

The rates are making many buyers reluctant to sell their homes — requiring people to trade in their pandemic-era low-interest mortgages for an average of 6.77% now, according to Freddie Mac.

It is imposed on newly built houses to alleviate the shortage of houses in the market.

„The housing revival is coming, but it's not coming in January,” said Robert Frick, corporate economist at Navy Federal Credit Union. „Higher mortgage rates, due to colder weather, may start to fall from December. We know that builders are willing to step up when rates fall, which could come in the spring.”

Headline inflation rises in January

16 hours and 22 minutes ago

Wholesale prices may have predicted some growth in consumer inflation in January.

Prices that manufacturers receive for their goods and services rose 0.3% in January compared to the previous month. That was more than the 0.1% expected, according to Dow Jones and economists. The Wall Street Journal. Prices fell 0.1% in December, canceling out November's 0.1% rise.

Prices rose 0.9% year-on-year. It was down 1% in December.

These prices are measured by the Bureau of Labor Statistics' producer price index, which is considered a proxy for consumer inflation. When prices are raised for producers, those costs are often passed on to retailers who sell the goods, who in turn pass them on to consumers.