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Chicago Fed President Austan Goolsby on Wednesday eased market concerns, saying higher-than-expected consumer price inflation doesn’t mean the central bank can’t cut interest rates in 2024.
“Let’s not get excited about a higher-than-expected month of CPI,” Goldsby said in a speech at the Council on Foreign Relations, referring to the latest consumer price index released Tuesday.
The index rose 0.3% in January from the previous month and 3.1% from a year earlier, both of which were better than economists expected, the CPI showed.
On a “core” basis, excluding volatile food and gas prices, prices in January rose 0.4% from the previous month and 3.9% from a year earlier. The core number remains twice the Fed’s 2% target.
Investors feared the news threatened the Fed’s ability to cut interest rates through at least the summer, and stocks plummeted. But Goolsby made it clear during a speech in New York that he thought inflation was still moving in the right direction.
“Even if inflation rises a little bit, that doesn’t mean we’re not on track to reach 2%,” Goolsby said. “Even with some increases and ups and downs, we may still be down the road…so let’s not get too upset.”
He said the Fed’s 2% target is not based on CPI. Instead, it is tied to another measure known as the Personal Consumption Expenditure Index.
Additionally, the Fed intends to measure inflation on a three-, six-, or 12-month basis.
“Then it’s perfectly clear that inflation is coming down,” he said. “It was six or seven months in a row.” [where] Inflation is close to target. ”
Goolsby said the Fed is closely monitoring home prices because it believes they need to fall to get inflation back to 2%. He expects that to happen, pointing to a decline in market rents.
The latest consensus among Fed officials in a report known as the Summary of Economic Projections (SEP) was for three rate cuts in 2024. They see inflation this year at 2.4%, which is higher than the inflation rate for the past six months. .
When asked if the Fed would cut interest rates if inflation were to reach 2.4%, Goolsby said, “Yes, the median SEP is 2.4% and there will be multiple rate cuts.” .
Fed officials plan to update their assessment of the number of rate cuts at their next policy meeting in March.
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