Statements by Fed members on the economy or policy continue. Barr stated that Q1 inflation was a disappointment and more time is needed to assess the situation. Jefferson commented on a number of important factors, but maintained the view presented by Barr:
- Jefferson expressed cautious optimism about the possibility of continuing to fight inflation while maintaining a strong economy.
- He stressed that the resilience of the labor market gives the Fed room to maintain its focus on lowering inflation. This suggests that interest rates should remain high for an extended period of time.
- He stated that a return to a more normal balance sheet is appropriate. The QT extinguishment process will begin in June.
- The Fed expects core PCE prices to rise at an annual rate of 4.1% in the first four months of 2024, with annual growth at 2.75%.
- It expects consumer spending growth to slow toward the end of the year. This could then give room for potential reductions. At the same time, however, some slowdown is already being seen among consumers.
- Jefferson noted that the increase in market rents during the pandemic could keep inflation in housing services high for some time to come.
- He stressed the need to evaluate overall data, rather than a single indicator, when analyzing the economic and inflationary situation. In view of this, the latest inflation reading does not change the Fed's stance.
Jefferson expressed cautious optimism about the possibility of continuing to fight inflation without weakening the economy, emphasizing the resilience of the labor market as a key factor. He believes that further employment growth is possible while inflation is falling. He noted that it is necessary to return to a more normal balance sheet and that interest rate policy remains restrictive. The Fed anticipates continued growth in core PCE prices, but expects consumer spending to slow later in the year. Longer-term inflation expectations are positive, but pandemic rent growth could still weigh on housing services inflation for a long time to come.
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EURUSD remains at important resistance, and even despite the market's optimism for reductions, the dollar is in a potentially good place to make up ground. This week's PMI data releases may prove to be key. Source: xStation5
