Fed will be unwise to listen to the market at this stage – Central Bank’s Roger Ferguson
Former Federal Reserve Vice Chairman Roger Ferguson reckons it would be “unwise” for the US central bank to follow market sentiment and lower interest rates as early as June. Speaking on CNBC’s Squawk Box on Friday, Ferguson said expectations of multiple rate cuts this year are ill-placed because inflationary pressures are still high.
CNBC mentioned that Fed futures markets heavily bet on five rate cuts in 2025, with traders pricing in a 99% likelihood of a rate reduction in June.
“I do not think that’s going to happen,” Ferguson said in response to the futures market projections. “I think that’s a market in wishful thinking, hoping the Fed bails them out.”
No cuts should be in sight, says Ferguson
The Former Fed Vice chair advised against interest cuts because inflation is still way above the central bank’s 2% target.
“Inflation expectations have been moving in the wrong direction, and hasn’t really come back down to the 2%. It would be unwise for the Fed to listen to the market at this stage. As long as there’s inflation in the air, and there certainly is, it would be unwise for them to signal that they’re only moving in one direction. They need to hold on to that inflation credibility.”
When asked how soon the Fed might begin easing rates, Ferguson dismissed the June borrowing rate cuts forecasts and suggested they may not occur at all this year.
“I think it’s well past June,” he said. “I’ve said a few times, I’m not sure they’re going to get any cuts off this year.”
He added that the Fed cannot afford to damage its inflation-fighting credibility, which had already taken a hit when policymakers were late to respond to the initial surge in prices.
“They were late to the game the last time around. Some of their inflation credibility was nicked. I don’t think they want that to happen again.”
If any cuts were to happen, Ferguson believes it would only be in the latter half of the year with more clarity on the economic situation in the US.
Labor market data negates need for rate cuts
Ferguson said that the better-than-expected March labor market data is even more reason for the Fed to maintain its current monetary policy stance.
“This labor report, it shows that the economy is still steaming ahead,” he said. “Roughly full employment, increasing jobs at somewhere between 130,000 to 150,000 every month. This is not a weak economy.”
While he admitted that the pace of growth had slowed compared to past quarters, the senior economist propounded that the US economy is on stable footing.
“The economy is still on an even keel, growing slowly, let’s say roughly at potential. The 4% unemployment rate is telling us the truth,” he continued.
Still, Ferguson noted that corporate executives are jittery about adding more investments and hiring decisions.
“There’s uncertainty in the C-suite, not being sure how much to expect in terms of CapEx, not being sure how much to expect in terms of adding more labor. If we took a snapshot of the economy today, I’d say it’s still in pretty good shape, but with some anxiety, some clouds hanging.”
Tariffs add to inflation headwinds
When asked if President Donald Trump trade tariffs have added to the inflationary risks, or it just boils down to lingering domestic price pressures, Ferguson said it was a little bit of both.
“The last report showed some good signs, but some things that were worrying,” he remarked. “We did not get inflation down to 2%. It was coming down slowly. Now we’ve got this new stimulus toward inflation, potentially, in tariffs.”
Some economists may argue that trade policies and interest rates operate independently, but the Fed cannot ignore policy-induced inflationary causes.
Donald Trump could have deployed tariffs to improve domestic industries or to simply penalize foreign competition for being “unfair” to the US. Still, such policies can provoke a monetary response, one that the Federal Reserve will have to react to.
The central bank is undeniably independent, and Trump doesn’t really have to look at what the government branch is doing to impose tariffs. However, they must respond to the economic consequences of any trade policy, including international trade levies.
“I think we need to be very even in our assessment of where we are here,” Ferguson concluded.
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Fed will be unwise to listen to the market at this stage – Central Bank’s Roger Ferguson
Former Federal Reserve Vice Chairman Roger Ferguson reckons it would be “unwise” for the US central bank to follow market sentiment and lower interest rates as early as June. Speaking on CNBC’s Squawk Box on Friday, Ferguson said expectations of multiple rate cuts this year are ill-placed because inflationary pressures are still high.
CNBC mentioned that Fed futures markets heavily bet on five rate cuts in 2025, with traders pricing in a 99% likelihood of a rate reduction in June.
“I do not think that’s going to happen,” Ferguson said in response to the futures market projections. “I think that’s a market in wishful thinking, hoping the Fed bails them out.”
No cuts should be in sight, says Ferguson
The Former Fed Vice chair advised against interest cuts because inflation is still way above the central bank’s 2% target.
“Inflation expectations have been moving in the wrong direction, and hasn’t really come back down to the 2%. It would be unwise for the Fed to listen to the market at this stage. As long as there’s inflation in the air, and there certainly is, it would be unwise for them to signal that they’re only moving in one direction. They need to hold on to that inflation credibility.”
When asked how soon the Fed might begin easing rates, Ferguson dismissed the June borrowing rate cuts forecasts and suggested they may not occur at all this year.
“I think it’s well past June,” he said. “I’ve said a few times, I’m not sure they’re going to get any cuts off this year.”
He added that the Fed cannot afford to damage its inflation-fighting credibility, which had already taken a hit when policymakers were late to respond to the initial surge in prices.
“They were late to the game the last time around. Some of their inflation credibility was nicked. I don’t think they want that to happen again.”
If any cuts were to happen, Ferguson believes it would only be in the latter half of the year with more clarity on the economic situation in the US.
Labor market data negates need for rate cuts
Ferguson said that the better-than-expected March labor market data is even more reason for the Fed to maintain its current monetary policy stance.
“This labor report, it shows that the economy is still steaming ahead,” he said. “Roughly full employment, increasing jobs at somewhere between 130,000 to 150,000 every month. This is not a weak economy.”
While he admitted that the pace of growth had slowed compared to past quarters, the senior economist propounded that the US economy is on stable footing.
“The economy is still on an even keel, growing slowly, let’s say roughly at potential. The 4% unemployment rate is telling us the truth,” he continued.
Still, Ferguson noted that corporate executives are jittery about adding more investments and hiring decisions.
“There’s uncertainty in the C-suite, not being sure how much to expect in terms of CapEx, not being sure how much to expect in terms of adding more labor. If we took a snapshot of the economy today, I’d say it’s still in pretty good shape, but with some anxiety, some clouds hanging.”
Tariffs add to inflation headwinds
When asked if President Donald Trump trade tariffs have added to the inflationary risks, or it just boils down to lingering domestic price pressures, Ferguson said it was a little bit of both.
“The last report showed some good signs, but some things that were worrying,” he remarked. “We did not get inflation down to 2%. It was coming down slowly. Now we’ve got this new stimulus toward inflation, potentially, in tariffs.”
Some economists may argue that trade policies and interest rates operate independently, but the Fed cannot ignore policy-induced inflationary causes.
Donald Trump could have deployed tariffs to improve domestic industries or to simply penalize foreign competition for being “unfair” to the US. Still, such policies can provoke a monetary response, one that the Federal Reserve will have to react to.
The central bank is undeniably independent, and Trump doesn’t really have to look at what the government branch is doing to impose tariffs. However, they must respond to the economic consequences of any trade policy, including international trade levies.
“I think we need to be very even in our assessment of where we are here,” Ferguson concluded.
Cryptopolitan Academy: Want to grow your money in 2025? Learn how to do it with DeFi in our upcoming webclass. Save Your Spot
Read More
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