Free Trial

MNI INTERVIEW: Fed Done Hiking, Inflation To Drop: Ex-Staffer


The Federal Reserve has finished hiking interest rates and will probably cut before year-end, ex-Philadelphia Fed economist Luke Tilley told MNI, a view counter to policymaker hints that a June pause might be followed with more tightening.

“My outlook is for inflation to slow appreciably through the year,” Tilley, now chief U.S. economist at Wilmington Trust, said in an interview. Inflation will slide to 3.5% in the next couple of months, end the year just above 3% and fall to around the Fed’s 2% target by spring of 2024, he said.

“When you get to the back half of the year and inflation has come down significantly and the economy is slow and long-term inflation expectations are very much in check, it doesn’t make any sense at all to have the fed funds rate at 5%. I think they’ll have to let off the brake a little bit.” (See MNI INTERVIEW: Fed Likely Done, Cuts Possible Before Year-End)

Hawkish Fed signals are more of an effort to tamp down market expectations for rate cuts than genuine fears of an inflation rebound, Tilley said. (See: MNI POLICY: Fed Most Divided Since Start Of Hikes, More Loom) Ten-year Treasury bonds traded at a yield of 3.71% Monday afternoon, less than the 4.51% yield on securities due in two years.


“When you ask Powell about financial conditions, the only thing he’s talked about in very specific terms is the real rate curve," he said. "They must be encouraged by what they’re seeing there. They’re not going to be as optimistic as they’re feeling because they don’t want markets to price in cuts.”

Tilley also pointed to moderation in housing, services and wage costs as evidence inflation will slip this year.

Housing costs should continue to fade as lags between home values and owner-equivalent rent calculations used by the Bureau of Labor Statistics narrow, he said. “We’re finally starting to see the shelter numbers come down and they should keep coming down,” he said.

The slowdown in consumer spending on services is also a good sign especially since it's come without major damage to employment, Tilley said.


“Inflation adjusted spending on services -- down to 1.7% three-month annualized over the past three months -- that’s a very normal rate of spending,” he said. The ISM’s latest services index for May fell to 50.3, the lowest since December.

Wage growth has slowed even with continued strong hiring including May's new 339,000 positions, he said. “Strong job growth is disinflationary as strong as the wages are not too high. I’m all for strong hiring.”

The Fed behind the scenes is likely concerned about more damage from recent problems in regional banks, he said. Tilley noted the Fed was created in 1913 to halt banking panics and that the rate-setting Federal Open Market Committee wasn't created until the 1930s.

“I don’t know that there’s an appreciation about how worried the Fed is about the regional bank situation. They have to say everything is ok. This is their baby – If they break it, it’s entirely on them.”

MNI Washington Bureau | +1 202 371 2121 |
MNI Washington Bureau | +1 202 371 2121 |

To read the full story

Why Subscribe to


MNI is the leading provider

of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.

Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.