Two senior Federal Reserve (Fed) officials hinted that interest rates are expected to remain at current levels for now despite some signs of inflation starting to subside. The US central bank's main focus is still on efforts to return inflation to its 2% target. Public Finance
Chicago Fed President Austan Goolsbee said inflation is still moving in an unsatisfactory direction despite some positive developments. He stressed that the biggest risk at the moment still comes from price pressures, while labor market conditions appear to remain strong.
The statement was made after data showed that core PCE inflation, the Fed's preferred inflation measure, rose to 3.4% in May, the highest level since October 2023. The increase was driven by rising energy prices and service costs, especially in the transportation sector.
Goolsbee also supported Fed Chairman Kevin Warsh's approach, which reduced the use of early guidance on the direction of interest rates. According to him, the Fed should not speculate on rate changes before economic data really supports the decision.
Meanwhile, New York Fed President John Williams expects inflation to start to decline in the coming period, although current monetary policy should still be maintained.
He believes price pressures will ease as the impact of tariffs fades, energy prices stabilize and rent increases begin to slow.
Williams projects inflation to fall to around 3.5% this year before gradually returning to the 2% target by 2028. He also stressed that the current monetary policy stance is still appropriate to achieve that goal.
Markets are now turning their attention to the Federal Open Market Committee (FOMC) meeting on July 28 and 29. For now, investors only see a 30% chance of the Fed raising interest rates at that meeting.
