National Economic Council Director Kevin Hassett said the Federal Reserve has no “excuse” to raise its benchmark for interest rates after the Labor Department’s latest jobs report showed inflation slowed in June.
The Fed typically raises rates to help reduce inflation and lowers rates to help stimulate the job market. After months of rising prices and positive hiring, some forecasters were beginning to expect a hike soon. Then, the department estimated that the year-on-year inflation rate fell to 3.5% in June from 4.2% in May. This means that, overall, prices still rose, but at a slower pace than last month.
In an interview on CNBC’s “Squawk Box”, Hassett called it an “amazing” report and one of the best reports he has seen in his career.
“If you’re looking at the data, then, you know, there’s really no excuse to raise rates right now,” Hassett told CNBC on July 15. “One or two reports like this, then I think they might be thinking the other way.”
For now, Fed officials say this is just a positive report. While “core” inflation, the department’s measure of price changes excluding volatile food and energy, also declined, the decline in headline inflation was driven by a 9.7% decline in gas prices in June – the same month the United States and Iran agreed to a temporary ceasefire that President Donald Trump has declared “finished.”
Warsh says ‘mission not accomplished’
During his congressional testimony this week, Federal Reserve Chairman Kevin Warsh wasn’t as celebratory as Hassett.
“It’s a data point,” he said on July 14, adding that one reason he created the data task force at the Fed was that he didn’t want to over-read or cherry-pick the data. “There may be some who will look at this morning’s data and say, ‘Oh, mission accomplished. Everything’s great.’ This is not my opinion.”
Trump, in his second term, has consistently called on the Fed to lower rates, with hopes that cheaper borrowing costs could boost the US economy. While former Fed Chairman Jerome Powell was often the target of Trump’s complaints, the president has not publicly pressured Wersch, whom he nominated for the role in January.
“At the White House we absolutely respect that Kevin Warsh will lead the committee to the right answers,” Hassett told CNBC.
What are Fed governors saying?
Since stepping into the role of Fed chairman in May, Warsh has been adamant about the Fed fulfilling its mandate to ensure price stability for Americans, who have been battling high inflation above the Fed’s 2% target for the past five years.
To achieve this, the Fed may need to raise interest rates “in the near term” if inflation remains well above the target, according to Fed Governor Christopher Waller.
“There is no alternative to keeping a tight watch on inflation until it melts before our eyes,” Waller said on July 13, ahead of the release of the June inflation report at the New York Association for Business Economics.
Fed Governor Lisa Cook said on July 15 that she was prepared to act if inflation did not slow, but she said in remarks to the Exchequer Club of Washington, DC, that she was willing to wait “a little more time.”
“I think it makes sense to give it a little more time to see how inflation plays out from here,” Cook said. “However, going forward, I believe risks will continue to shift strongly toward higher inflation.”
‘Probably going to pass in July’
The Beige Book, a report that provides information on economic conditions in the Fed’s 12 districts, will also help policymakers make decisions at their next meeting.
Its latest release on July 15 showed US employment increased in five districts and little change in seven others. By comparison, only one district reported employment gains in the previous report released on June 3.
On the other hand, prices rose overall, the latest Beige Book said. Nine districts recorded moderate growth, two recorded strong growth and one recorded marginal growth. Price growth was flat or slower in all 12 districts compared to the previous reporting period.
“The speeches from Fed officials also reflected, ‘Hey, if we see a sharp increase in inflation soon, we’ll change our views more, but we really need to see something like that going forward,'” Skanda Amarnath, executive director of Employ America and a former New York Fed analyst, told USA TODAY. “He will probably pass away in July.”
As of July 16, most forecasters expect policymakers to hold the federal funds rate steady at a range of 3.5% to 3.75% at the end of their next meeting on July 29. About half are still betting on a quarter-point hike after the Fed’s next meeting in September.
Contribution: Reuters