MNI INTERVIEW: Fed Won't Start Cuts Until Dec Or Later-Fuhrer

MNI (WASHINGTON) - Federal Reserve officials might need to wait until December or later to agree it’s time to initiate what is likely to be a gradual and fairly shallow interest rate cutting cycle, former Boston Fed research director Jeffrey Fuhrer told MNI. 

Fuhrer is optimistic that inflation is heading sustainably back to target, but believes the Fed is sufficiently nervous about possible bumps along the road to price stability to wait until after the presidential election before it starts reducing borrowing costs. 

“I think they’ll remain cautious. There are people saying there’s a chance of a September cut. I would probably put a lower probability on that,” said Fuhrer in an interview Tuesday. (See MNI INTERVIEW: Fed To Open Door To Sept Cut Next Week- English)

“They’re going to try to be really sure that they’ve got several months of confirming data under their belt, they’re not quite there yet.”

The data flow would have to be truly stellar in order to convince all Fed officials to ease by the September meeting, said Fuhrer, who was also a senior policy advisor at the regional Fed bank, and started his over three-decade career in the Fed system at the board of governors.

“Either they'll see something really terrific, a couple months of terrific data on both sides, and move in September, or they're going to wait until December -- or even the first meeting of 2025. I think that's the more likely course,” he said. 

Inflation pressures are likely to continue to abate in a way that makes Fed officials increasingly confident that they will hit the 2% target in a timely manner, even if base effects lead to statistical upticks in certain months, according to Fuhrer.

TARGET BOUND

“Inflation will have been tamed by roughly the end of this year, beginning of next year,” he said. 

“Inflation normalized after all the supply disruptions. Expectations are doing reasonably well. The only bumps in the road are going to be because the monthly pattern of inflation rates if you look back over the last 12 months is somewhat uneven, so there are higher numbers that will roll in and some that will roll out depending what month you’re looking at. Apart from that, unless there’s some real disruption, I think we’re on our way to achieving target.”

Fuhrer said it’s even possible, given global trends, that inflation will dip below 2%. And given how much inflation pinched lower earners, it might behove policymakers to allow some undershoot. 

“It is wise for the Fed to think more in these circumstances about what are the effects of lingering high price levels, especially on lower income and even middle income families,” he said. 

EMPLOYMENT STABLE

Fuhrer was not overly concerned by a recent softening in the employment picture, though he watches the data carefully. (See MNI INTERVIEW:Fed Cuts Near, Hiring Weaker Than Appears-Wilcox)

“I don't think, to date, the modest, really slender, deterioration in employment is deeply concerning,” he said. “It is a possible sign that we're seeing the beginnings of very mild slowdown, but it's also entirely possible it's just consistent with getting to a more sustainable pace of employment growth.” 

“In that regard, the ticks up in the unemployment rate are a bit more worrisome, but we're still in the very low range here, arguably at an unemployment rate that's consistent with full employment.”