US Federal Reserve Chairman Jerome Powell made the remarks during a hearing of the Senate Committee on Banking, Housing and Urban Affairs in Washington, DC, US, Tuesday, July 9, 2024.
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Markets are currently confident that the US will cut interest rates in September, but economist Carl Weinberg says the Federal Reserve has strong reasons to hold off on any rate cuts.
Money market expectations of a rate cut at the Fed’s autumn meeting rose from about 70% to more than 90% on Thursday, after the weaker-than-expected consumer price index, according to LSEG data.
Fed Chairman Jerome Powell had already raised hopes of such a move earlier this week when he said there were risks to keeping interest rates too high for too long, comments that analysts interpreted as “somewhat dovish.”
But easing monetary policy also carries the risk of casting a pall over the outlook for rate cuts, Weinberg, chief economist at High Frequency Economics, said on CNBC’s “Squawk Box Europe” on Friday.
“The Fed chairman was very clear in his testimony this week that inflation measures and the broader economy are moving in the direction we would like to see,” Weinberg said.
He said this includes unemployment being around 4 percent, inflation approaching 2 percent and the economy growing “roughly” at its potential rate.
“but [Powell] “And the implication was, if the economy is at full employment, inflation is where you want it to be, and it’s growing well, why would you want to change anything? Why would you want to tinker with what you have? Why would you want to cut interest rates in that situation?” Weinberg continued.
“Certainly there is noise, rumors and data in support of a rate cut. [the September] at the meeting. But there are dark clouds hanging over the decision.”
Weinberg added that while a fall rate cut seems likely for now, a lot could change between now and the Fed’s Sept. 18 meeting.
Two more CPI releases are scheduled before then, and the Fed next meets at the end of July, when markets are pricing in just a 5% chance of a rate cut.
U.S. inflation peaked at a lower level than many other major economies over the past three years, but it has also fallen more slowly, leaving the Fed stranded on its accommodative monetary policy path.
Central banks in the euro zone, Switzerland, Sweden and Canada have all cut interest rates already this year, but the Bank of England’s August decision is seen as hanging by a thread.
