Chicago Fed President Charles Evans said that the actual federal funds rate has tightened significantly and the economy is not overheating, so this restriction is not needed; the Fed may need to cut interest rates quickly to avoid further deterioration in the labor market. Dallas Fed President Robert Kaplan did not mention monetary policy, stating that the crisis triggered by Silicon Valley Bank last year shows that the current federal deposit insurance limit may be too low, and the last time the limit was raised was in 2008.
Another Fed official suggests that the Fed is closer to cutting interest rates. This time it was the dovish Chicago Fed president, Williams.
On Thursday, July 28th, Eastern Time, Williams, who will have a vote in the Federal Reserve's monetary policy committee (FOMC) meeting in 2025, warned that there is a risk of an economic recession if Federal Reserve officials wait too long to relax monetary policy. He told the media that the Federal Reserve may need to lower borrowing costs quickly to prevent the labor market, which has been cooling for the past few months, from further deteriorating. Williams said that the Federal Reserve's struggle with inflation is still ongoing, but several months of improved inflation data have convinced him that inflation has returned to the target of 2% of the Federal Reserve. "The fight against deflation has not yet been won, but when I see several consecutive months of improvement in data, I feel much better," he said. He pointed out that the U.S. labor market is "definitely an area of concern," and that keeping interest rates high while easing price pressures meant that monetary policy would be "significantly tightened." Williams declined to say when he expected to cut rates. When asked if the Federal Reserve has a basis for cutting interest rates, Williams replied that this is the way to achieve the target of 2%. When asked if Federal Reserve officials would threaten the "golden path" Williams described, which would win the prospect of victory in the anti-inflation war without causing a recession, Williams immediately replied"yes". If you want restrictions like we have now, you're taking a risk on the golden path," he said."Williams said that the actual federal funds rate, the difference between the interest rate and the inflation rate, is at a high level in decades. This means that the actual federal funds rate has tightened significantly. "When do you want this kind of restrictive (environment)?As I said, if you're worried about an overheated economy, you should adopt a restrictive policy, but the economy isn't overheated," he said.
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Williams declined to say when he expected to cut rates. When asked if the Federal Reserve has a basis for cutting interest rates, Williams replied that this is the way to achieve the target of 2%. When asked if Federal Reserve officials would threaten the "golden path" Williams described, which would win the prospect of victory in the anti-inflation war without causing a recession, Williams immediately replied "yes." If you want restrictions like we have now, you're taking a risk on the golden path," he said.
Williams said that the actual federal funds rate, the difference between the interest rate and the inflation rate, is at a high level in decades. This means that the actual federal funds rate has tightened significantly. "When do you want this kind of restrictive (environment)?As I said, if you're worried about an overheated economy, you should adopt a restrictive policy, but the economy isn't overheated," he said.
Also on Thursday, Dallas Fed President Logan, who will have a vote in the FOMC meeting in 2026, did not talk about monetary policy. Speaking at a conference on bank financing in Dallas, she said the Fed was ensuring that banks could use the Fed's emergency liquidity feature when necessary. The Fed's discount window, a liquidity tool that provides loans to absorbing deposit-taking banks, "effectively supports the stability of banks and the financial system, and thus promotes credit flow to households and businesses," she said.
Logan believes that the current federal deposit insurance limit may be too low, especially considering that Silicon Valley Bank's bankruptcy last year triggered a crisis in the U.S. banking industry. The last time the U.S. Congress raised the federal insurance deposit limit was in 2008, and since then the economy has grown significantly. If the limit on such insurance deposits grew in line with GDP, the current limit of nearly $500,000 would be far above the $250,000 limit since 2008. Demand for protection of depositors after the collapse of Silicon Valley Bank shows that this limit is too low.
Before Williams and Logan spoke earlier this week, several Fed officials hinted that interest rate cuts were imminent.
Fed Chairman Powell said earlier this week that with data from the second quarter of this year, including last week's data, U.S. inflation has made more progress and the recent three inflation reports have been "quite good," "which has indeed to some extent strengthened" the Fed's confidence in the inflation will continue to fall to the target.
On Wednesday, Fed vice-chairman Williams said that if inflation continues to slow down, interest rates will be cut in the next few months. There are signs that the U.S. labor market is cooling down, and the past three months of inflation data "are closer to the deflation we want."
Fed director Warl, who was considered an frontrunner for the next Fed chairman earlier this year, believes that the Fed is closer to cutting interest rates, but suggests that the timing is not yet right. The media believes that Warl's comments indicate a change of attitude. Two months ago, he hinted that there might not be a need to cut interest rates before December this year. This Wednesday, he said that recent data showed progress in inflation recovery, and suggested that he would like to see"more evidence" that inflation is on a sustainable downward trend.
Editor/Somer