Fed Officials Say Higher Neutral Rate Could Mean Fewer Fed Rate Cuts

While all eyes are on how Federal Reserve officials seem to be diverging in opinion on the correct path ahead, they also have been steadily shifting thওeir thoughts on ⛎where rates will ultimately end up.

During their last meeting, officials raised their long-term interest rate forecast for the first time since 2019, now projecting that interest rates will settle at a “澳洲幸运5开奖号码历史查询:neutral rate”  of 2.6%.

This neutral rate represents where interest rates should be set under normal economic conditions to maintain low unemployment while keeping long-term inflation confined to the Fed's 2% annual growth target.  

Fed officials have said in the past that the neutral rate 🍰is difficult to calculate. But some economists suggest the neutral rate may be 𒁃higher than the current estimates.

In that case, interest rates may not be high enough now to be sufficiently “restrictive." That could mean fewer rate cuts would be needed over time, or that rates could possibly need to be raised higher, former U.S. Treasury Secretary Larry Summers said today in an interview with Bloomberg.

“It seems the evidence is overwhelming that the neutral rate is far higher than the Federal Reserve supposes,” Summers said🥃.

In addition to 澳洲幸运5开奖号码历史查询:questioning the timing of rate cuts, some Fed officials are joining Summers in wondering whether their projections for the🌄 neutral rate are too low.

“In my view, given potential structural changes in the economy, like higher investment demand relative to available savings, it is quite possible that the level of the federal funds rate consistent with low and stable inflation will be higher than before the pandemic,” Federal Reserve Gov. Michelle Bowman said Friday.

In her remarks the same day at Duke University, Dallas Fed President Lorie Logan said several factors could suggest the neutral rate is higher than current estimates. Those include growing federal deficits, the energy transition, nearshoring the supply chain, and productivity increases spurred through technology like artificial intelligence (AI).

“As I formulate my views on appro🍸priate policy, I’m taking evidence of sustained shifts in the neutral rate into account, alongside all the ot♐her evidence on the economic and financial outlook,” Logan said. 

Fed’s Bowman Raises Possibility of Rate Hikes, Says Not at Point for Rate Cuts

Citing the risks of long-term inflation on the economy, Federal Reserve Governor Michelle Bowman held open the possibility of further rate hikes in prepared comments given at the Manhattan Institute in New York.

“While it is not my baseline outlook, I continue to see the risk that at a f⭕uture meeting we may need to increase the policy rate further should progress on inflation stall or even reverse,” she said.

While there was progress on inflation last year, she said it was still unclear whether that would continue into 2024, she said. The Fed was still not at a point where it🎐 was “appropriate” to lower interest rates, she added. 

“Reducing our policy rate too soon or too quickly could result in a rebound in inflation, requiring further future policy rate increases to return inflation to 2% o🅷ver the longer run,” she said. 

-Terry Lane

Fed’s Logan Says ‘Too Soon’ to Consider Rate Cuts

In highlighting worries over recent inflation readings, Dallas Federal Reserve President Lorie Logan said she had concerns high interest rates weren’t doing enough to reduce price pressures.

“I believe it’s much too soon to think about cutting interest rates. I will need to see more of the uncertainty resolved abo♊ut which economic path we’re on,” Logan said🐼 in remarks to Duke University.

Logan’s comments come as the Federal Reserve held interest rates atꦑ꧟ 23-year highs at their last meeting, but forecast three interest rate cuts in 2024. However, continued strong economic data has raised questions about whether 澳洲幸运5开奖号码历史查询:inflation would remain too high to allow the Fed to cut rates. 

So far, inflation reports in 2024 澳洲幸运5开奖号码历史查询:have been higher than expected. Logan described 澳洲幸运5开奖号码历史查询:January’s inflation report as “disappointing” and 澳洲幸运5开奖号码历史查询:February’s data as “better,”  but still not great.  

“To be clear, the key risk is not that inflation might rise—though monetary policymakers must always remain on guard against that outcome—but rather 🌟that inflation will stall out and fail to follow the forecast path all the way back to two pe🐎rcent in a timely way,” Logan said. 

Overal🦄l, Logan said businesses in her region were optimistic over a “soft landing,” with a survey showing that half of the firms surveyed in Texas expected demand ꩵto pick up during the next six months.

“The risk of an abrupt deterioration in economic activity appears to be fading,” she💞 said.

-Terry Lane

Yellen Visits China, Talks Manufacturing Capacity

U.S. Treasury Secretary 澳洲幸运5开奖号码历史查询:Janet Yellen said on Friday that co♏ncerns are growing o🍸ver the global economic fallout from China's excess manufacturing capacity as she kicked off a four-day visit there.

"Overcapacity can lead to large volumes of exports at depressed prices," she said in a speech in the southern city of Guangzhou, noting that overcapacity would undercut American businesses, as well as those globally, including those from India and Mexico. "And it can lead to over concentration of supply chains, posing a risk to global economic resilience," she said.

She said the 澳洲幸运5开奖号码历史查询:European Union had launched an investigation into subsidies for Chꦅinese electric vehicle ex🌟ports to Europe, and that many countr🌱ies see overcapacity from China "really growing as a threat" and are "quite determined to make sure that their industries—particularly EVs, batteries, solar—do not go o𒁏ut of business because of artificially cheap exports from China."

"Overcapacity isn’t a new problem, but it is intensified and we are seeing emerging risks in new sectors; specifically, direct and indirect government support is currently leading to production capacity that significantly exceeds China’s domestic demand as well as what the global market can bear," she said.

Apart from saying China’s factories risk producing more than the world ღcan easily absorb, she also criticized China’s government f꧒or “unfair” treatment of American and other foreign companies.

Read more about Yellen's visit here.

-Fatima Attarwala

Jobs Surprise Economists With More Growth Than Anticipated

The economy gained 303,000 jobs in March, according to a report from the Bureau of Labor Statistics released Friday. That's far more than the 200,000 economists surveyed by Dow Jones Newswires and The Wall Street Journal expected. It's up from February's revised 270,000 and still far above the 191,000 average in the five years leading up to the pandemic.

The economy has gained jobs every month since December 2020, with March marking the 39th straight month of job gains.

The 澳洲幸运5开奖号码历史查询:unemployment rate declined to 3.8% from 3.9%, not f🦋ar from the 50-year low of 3.4% it reached last April. 

Today's report is the latest evidence of the economy’s resilience under the weight of the 澳洲幸运5꧒开奖号码历史查询:Federal Reserve’s high interest ratesꦦ, which have kept borrowing costs on all kinds of loans at their hi🌊ghest in decades to restrain inflation. 

Read more about the jobs report here.