MNI INTERVIEW: FOMC Won’t Agree On Cuts Until December-Pingle
MNI speaks with former Fed board economist Jonathan Pingle.
The Federal Reserve is too divided about whether to begin cutting interest rates for now, and policymakers are unlikely to coalesce around such a decision until December, former Fed board economist Jonathan Pingle told MNI.
Given mounting signs of economic softness, Pingle was surprised by the distribution of FOMC members’ forecasts for when they see the first rate cut in this week’s Summary of Economic Projections – in particular, that 11 of 19 are willing to wait until December or beyond.
“They seem to be facing no sense of urgency to cut. I don't know what is going to provide them with any urgency in time to put September back on the table for a lot of these participants,” said Pingle, now chief U.S. economist at UBS.
The median Fed dot pointed to just one rate cut for the year, a view that Pingle says he has embraced. “We pushed our first cut call from September to December yesterday after the dot plot and the press conference,” he said in an interview.
Just eight officials saw two cuts this year, which he views as the minority who favors a September move.
“I’m going to guess four were probably regional Fed presidents, maybe five. So it looks like there’s even a split amongst the board about simply until December,” he said. “Chair Powell seems very comfortable with the current stance of policy.”
Pingle said a November cut is likely off the table because “it’s just going to be extremely difficult to communicate the first cut of dialing back restrictiveness if the quiet period includes a presidential election,” he said.
“So I really looked at the dot plot as people trying to decide whether or not to keep September on the table, or just wait until December or next year. And it looks like a reasonable majority think that it’s okay waiting.” (See MNI INTERVIEW: Fed Might Not Cut Rates In 2024-Andolfatto)
ADVANCE SIGNALS
Pingle said Powell tends to like to communicate his decision well in advance and for now, he did not appear to be laying the groundwork for a September cut.
“Chair Powell did not sound like a Fed chair who is going to cut two meetings later. And he’s also been a chair who’s generally liked to communicate the committee’s thinking in advance,” Pingle said.
“Is he going to communicate September is the time in the July press conference? I struggle with it. You will have Jackson Hole but there’s actually not that much information between now and then.
INFLATION RETICENCE
Powell told reporters during his press conference the Fed SEP’s shift to a median of one cut for 2024 reflected in part policymakers’ upward revision of their year-end inflation projection, to 2.8% from 2.6% on core PCE.
While Powell said those estimates reflect an element of conservatism regarding the possibility of upside surprises, Pingle believes inflation will catch officials off guard by falling more quickly than they expect.
Still, Powell did not seem phased by the signs of cracks in the economy and the job market that Pingle sees, describing both as robust.
“Our inflation forecast says they should already be cutting already. We think they’re falling behind the curve,” he said.
“If they’re not worried a little bit more about the strength of the expansion, 2.5% core inflation isn’t going to scare somebody. Barring labor market weakness it just seems like the people that keep pushing out the timing are comfortable with it and winning the debate.”