NEW YORK – Two top Federal Reserve officials hammered home the message on Feb 23 that the US central bank is still on track to cut interest rates in 2024 – just not anytime soon.

Fed vice-chair Philip Jefferson and governor Lisa Cook said they are optimistic inflation is still cooling despite a blip in January, but made clear they want more evidence it is headed back to their 2 per cent target before lowering borrowing costs.

“At some point, as we gain greater confidence that disinflation is ongoing and sustainable, that changing outlook will warrant a change in the policy rate,” Dr Cook said at an event at Princeton University.

Dr Jefferson agreed rate cuts this year are likely, but said that officials need to be on guard against reducing them too much in response to easing price pressures.

“Excessive easing can lead to a stalling or reversal in progress in restoring price stability,” he said in a speech at the Peterson Institute for International Economics.

The remarks – the first from either Fed board official in several months – echo recent comments from chair Jerome Powell and others. Fed officials generally concur that rates likely are at a peak, but they do not seem to be in a rush to reduce them. Mr Powell told reporters following the Fed’s Jan 30 and 31 meeting that a rate cut at the central bank’s gathering in March was unlikely.

As recently as mid-January, investors and some economists were betting on the Fed to start lowering rates at its March 19 and 20 meeting. Markets have since significantly dialled back expectations for early and rapid cuts, shifting wagers on the first move to June or July on the heels of reports showing job and price gains well above forecasts in January.

Philadelphia Fed president Patrick Harker said at a separate event that cutting rates too soon could unwind progress made on inflation, and that he wants to see more evidence that price pressures are broadly easing.

“I believe that we may be in the position to see the rate decrease this year,” Dr Harker, who does not vote on policy decisions in 2024, said in Newark, Delaware. “But I would caution anyone from looking for it right now and right away.”

Still, Dr Harker said he would not take the possibility of a rate cut in May off the table, adding: “Just give us a couple of meetings.”

The patient approach by policymakers has been largely validated by data released in recent weeks. The consumer price index rose by more than forecast in January across the board, and prices paid to US producers also climbed.

As a result, economists forecast the Fed’s preferred gauge of underlying inflation to rise at the fastest pace since early 2023 when it is released next week.

The jobs market, meanwhile, has remained robust, with employers boosting payrolls in January by the most in a year while unemployment hovers around multi-decade lows, at 3.7 per cent. 

But Dr Jefferson cautioned that the labour market could deteriorate quickly and that the Fed must be vigilant as a result.

Dr Cook warned of the risk that slowing demand could prompt companies to start laying off more workers, and “lead to a much more pronounced rise in unemployment than we have seen so far”.

Both Dr Jefferson and Dr Cook said they had been surprised by the strength of consumer demand in 2023, but said they expect it to slow in 2024 as high rates continue to weigh on households.

“Savings built up during the pandemic are diminishing, especially for those with low or moderate incomes,” Dr Cook said. “Some measures of credit use, such as credit card and buy-now-pay-later use and the share of households carrying a credit card balance, have risen above their pre-pandemic levels.”

Dr Jefferson said he saw three key risks to the outlook. Consumer spending could prove more resilient than he expects, stalling progress on inflation. Oil and other commodity markets could be roiled by a widening of the conflict in the Middle East. Employment could weaken as growth fades. 

“The labour market can change dramatically,” he said in a question-and-answer session following his speech. “We have to be careful, and we have to try to assess the different shocks that can hit the economy and adjust policy accordingly.” BLOOMBERG