Federal Reserve Is Struggling To Make Sense of U.S. Inflation

In this post:

  • Federal Reserve officials are clueless about current U.S. inflation, according to Julian Howard.
  • Policymakers urge patience over interest rate cuts due to sticky inflation.
  • Fed Governor Waller needs more positive inflation data before easing policy.

Federal Reserve officials appear to be at a loss regarding the current inflation situation in the U.S., according to Julian Howard, lead investment director of multi-asset solutions at GAM. Howard’s comments come amidst policymakers urging patience over interest rate cuts.

Also Read: Falling Inflation Stumbles Dollar Rally, Fueling Speculation of Rate Cuts

The policymakers argue that inflation has not decreased as much as expected and remains too high for the Fed to ease monetary policy. This uncertainty is reflected in the general stance on interest rates, with many officials, including Fed Governor Christopher Waller, emphasizing the need for more data before supporting rate cuts.

The Federal Reserve Is Being Patient

In recent weeks, there has been a chorus of calls from Fed officials for caution. Waller’s statements on Tuesday were about the need for major improvements in inflation data before any monetary policy easing. Appearing on CNBC’s Squawk Box Europe, Julian Howard stated:

I think the message that’s coming through is that they have no idea what’s going on.

Meanwhile, Boston Fed President Susan Collins believes that the data has been mixed and that patience is important. She now believes it will take longer than she had thought to cut rates. The policymaker added that the U.S. economy is in a period when patience really matters.

Federal Reserve Is Struggling To Make Sense of U.S. Inflation
The Federal Reserve Headquarters, Washington, D.C. Source: Wikipedia

Fed Accused of Discredibility

Federal Reserve Chairman Powell has stated that he needs to see several more months of positive inflation data before he would be comfortable supporting a change toward easing monetary policy, assuming there is no significant weakening in the labor market.

However, Howard criticized the Fed for its unclear messaging about their expectations and the reasons behind persistent inflation. He mentioned that inflation is notoriously difficult to predict and suggested that the Fed does not understand what is happening. He also pointed out a credibility problem within the central bank.

Also Read: U.S. Inflation Rate Drops to 3.4% in April

Policymakers initially suggested inflation would be subdued when it started rising, but the rate then spiked. Howard pointed out that the Fed’s predictions have been off the mark. He added that they think inflation is coming down, but it’s not fast enough.

U.S. Inflation Remains Notorious

Data released earlier this month showed the U.S. consumer price index at 3.4% for April on an annual basis, a slight dip from March’s 3.5% and far below the 9.1% recorded in June 2022 when the inflation cycle peaked. Despite this, the figure remains above the Fed’s 2% target.

Federal Reserve Is Struggling To Make Sense of U.S. Inflation
Latest US inflation data. Source: BLS

Meanwhile, U.S. retailers are adjusting their strategies in response to consumer fatigue after three years of high inflation. Prices are dropping for thousands of items at Target and Walmart. Target announced plans to lower prices for 5,000 items, ranging from milk to paper towels, to stay competitive this summer. Similarly, Walmart has reduced prices on a large number of grocery products. “Inflation did start coming down but then it seems to have just got stuck at around 3.5% and everyone is trying, is struggling to find a narrative to why it’s got stuck at 3.5% and I think that’s… that’s the challenge,” Howard said.

Cryptopolitan reporting by Jai Hamid

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DisclaimerThe information provided is not trading advice. Cryptopolitan.com holds no liability for any investments made based on the information provided on this page. We strongly recommend independent research and/or consultation with a qualified professional before making any investment decision.

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