Lisa Cook from the US Federal Reserve commented today US economy and monetary policy, signalling that Fed is ready to cut rates further if projections will realize, driving inflation lower from current levels. USDIDX gains more than 0.6% today as markets believe that Trump trade policy will make inflation at least more elevated.
- Job risks are weighted to the downside, but have diminished in recent months. Slowing wage growth increases confidence in continued disinflation.
- The job market overall remains solid, recent weak growth a result of the temporary strike and storm effects.
- The labor market largely normalized, and is no longer a source of inflation.
- Continued growth with slowing inflation could mean the underlying potential is greater than thought.
- Faster productivity growth appears to have supported both potential and actual growth.
- Housing services account for most of the excess of core inflation. Economic growth is robust, I expect expansion will continue.
- If inflation progress slows with the job market still solid, could see a scenario for pausing. The totality of data suggests disinflation is still underway, with the labor market gradually cooling.
- Cuts so far were a strong step toward removing policy restriction. The magnitude and timing of rate cuts will depend on coming data, the outlook, and the balance of risks. Policy is not preset.
- Risks right now are roughly in balance. The economy is in a good position, though core inflation is still somewhat elevated.
- Elevated core inflation suggests the fed still has further to go. If the labor market and inflation evolve as expected, it would be appropriate to continue lowering the policy rate towards neutral.
- This moment could be incredibly important if productivity has shifted higher. It is possible even that the US is underestimating the productivity gains from AI. Productivity is such a long-run, stable trend, that exceeding it is very hard to do.
Source: xStation5
