Julian Howard, GAM's chief investment director for multi-asset solutions, said Federal Reserve officials seemed “clueless” about the US inflation situation.
Julian Howard, GAM's chief investment director for multi-asset solutions, said Federal Reserve officials seemed “clueless” about the US inflation situation. As he made these remarks, Fed policymakers have been urging patience with interest rate cuts in recent weeks. They believe that the decline in inflation is lower than previously anticipated, and that it is still too difficult for the Federal Reserve to push forward a loose monetary policy. “I think the message they're conveying is that they don't know anything,” Julian Howard said.
Federal Reserve Waller said on Tuesday that before supporting interest rate cuts, he needs to see more data to prove that inflation is weakening. He said at an event at the Peterson Institute for International Economics in Washington: “In a situation where there is no significant weakness in the labor market, I need to see good inflation data for several more months before I can confidently support the relaxation of monetary policy positions.”
Waller's remarks were echoed by other Federal Reserve officials, including Boston Federal Reserve Chairman Collins. Collins said, “I think the data is very complicated, and it will take longer than I thought before. We are in a time where patience is very important.”
However, Julian Howard said that Federal Reserve officials have yet to send a clear message about their expectations, nor explain why inflation remains high. “As we all know, inflation is difficult to predict,” he said. I don't think they have any idea what's going on.” “Honestly, it's a question of credibility.” He added: “Right now [policymakers] think inflation is falling, but it's not falling fast enough.”
According to data released last week, the US CPI rose 3.4% year on year in April, slightly lower than the 3.5% in March, far lower than the peak of 9.1% in June 2022, but still higher than the Federal Reserve's 2% target. Julian Howard said, “The inflation rate did begin to decline, but then it only seemed to stay around 3.5%. Everyone is struggling to find an explanation for why it's stuck at 3.5%. I think it's a challenge.”
Julian Howard added that the stock market seems to be dealing with high levels of inflation and has also adjusted expectations for interest rate cuts. Currently, expectations for interest rate cuts are far lower than earlier this year. He attributed the market's mild reaction to changes in large stocks. He explained that these companies currently have high levels of cash and can make relatively risk-free investments, such as short-term US bonds.