By Lindsay (NYSE:LNN) Dunsmuir and Michael S. Derby
(Reuters) - U.S. central bankers want to hold off on cutting interest rates until they have more confidence that inflation is headed down to 2%, and on Wednesday gave a range of reasons for feeling little urgency to start easing policy soon or to move quickly once they do.
Last week the Federal Reserve held the policy rate steady in the 5.25%-5.5% range, where it has been since last July, and Fed Chair Jerome Powell said there would likely not be enough data by the next meeting, in March, to feel sure they have made enough progress against inflation to reduce borrowing costs.
His colleagues appear to agree.
“For the moment, policy remains well positioned, as we carefully assess the evolving data and outlook,” Boston Fed President Susan Collins told the Boston Economic Club on Wednesday. "As we gain more confidence ... I believe it will likely become appropriate to begin easing policy restraint later this year."
The strength of the labor market and the economy, she said, suggests that cooling will take some time, and rate cuts should be gradual and methodical when they start.
In December most Fed policymakers forecast three or more interest-rate cuts this year.
Since then, inflation has continued to ease, registering 2.6% in December by the Fed's targeted measure, the year-over-year change in the personal consumption expenditures index, and at 2% based on the more recent six-month trend.
The economy and the labor market have both outpaced expectations, with U.S. GDP growing at a 3.3% annualized pace last quarter, and U.S. employers adding 353,000 jobs last month.
"Sitting here today I would say two to three cuts would seem to be appropriate for me right now...that's my gut based on the data we have so far," Minneapolis Fed President Neel Kashkari said in an interview with broadcaster CNBC.
If the labor market continues to be strong, he said, the U.S. central bank could reduce interest rates "quite slowly" but if there was a material slowdown it might have to speed up.
Richmond Fed President Thomas Barkin, who like Kashkari tends to be on the more hawkish side of the Fed policymaker spectrum, said he still wasn't quite sold on the idea that progress on inflation will continue, given that disinflation so far has come from easing prices in goods and has yet to spread to the services and rental sectors.
"I am very supportive of being patient to get to where we need to get," Barkin said at The Economic Club of Washington.
"There's still a reasonable amount of uncertainty" on inflation, he said. "I am waiting to get more clarity on that before declaring anything more on what we do on the policy side."
Fed Governor Adriana Kugler, in her first public comments since starting the job last September, said for her part she is "optimistic" that progress on inflation will continue with help from both slowing wage growth and from lower rents, though like her colleagues she said she needs more data to be sure, and would support holding rates steady for longer if disinflation stalls out.
"March, May, June - every meeting from now until the end of the year and moving forward will be live," she said.
Analysts and financial market expectations both point to the Fed's April 30-May 1 meeting as the likely start for rate cuts this year.