On September, rate cut is already a foregone conclusion? Former Fed official: a bit premature

The Federal Reserve seems to be ready to start a rate-cutting cycle in the near future. The latest data from CME's Fedwatch tool shows that the probability of a rate cut by the Federal Reserve in September is almost 100%. Chicago Fed President Guersby emphasized the fact that the Federal Reserve is moving towards its 2% inflation target in an interview late Thursday local time. He said that although the Federal Reserve is still struggling with inflation, the continuously improving data over the past few months has convinced him that inflation has returned to a sustained downward trajectory towards the 2% target. However, he noted that the labor market is "definitely a worrisome area" and pointed out that maintaining high rates while easing price pressures implies that monetary policy has "significantly tightened". When asked if there are risks to Guersby's "golden path" (winning the inflation battle without a significant rise in the unemployment rate), the Chicago Fed President immediately responded, "Yes." He pointed out, "The real federal funds rate (rate minus inflation) has reached the highest level in decades... If you are afraid of the economy overheating, you would want to take restrictive measures, but the economy is not overheating now." Guersby will vote as an alternate member of the Federal Open Market Committee (FOMC) at the Federal Reserve meeting later this month. However, he did not specify when rate cuts should begin. In recent weeks, officials led by Federal Reserve Chairman Powell have stated that progress is being made towards lowering inflation to the 2% target, but they have been vague about the timing of rate cuts. Former Kansas City Fed President Thomas Hoenig recently expressed his views on the current monetary policy of the Federal Reserve, how officials are addressing economic concerns, and why they should proceed with caution. Hoenig, currently a distinguished senior fellow at the Mercatus Center at George Mason University, believes that it is understandable for the Federal Reserve to be "eager to cut rates". Hoenig said, "I am concerned about the labor market, but the unemployment rate is still at 4.1%, which is still historically low in a sense, and I think this is very positive." However, he added, "The fact is, the inflation rate is still at 3% year-on-year, measured by their preferred indicator at 2.6%, still below 2%. Yet they say they will cut rates in September. I think this is a bit premature." Overall, Hoenig believes the labor market is stable: "I think wages are increasing. This is a good thing, and retail sales are also very strong. These are all very positive things. They do not indicate the need for rate cuts." He said, "Another thing I have been reminding them of is that I have seen this situation in the 1970s—first let inflation decline for a while, then quickly cut rates, and then inflation will rise again."