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Financial Bulletin

Bowman, governor of the Federal Reserve, said: I don't think there is any reason to cut interest rates this year.

Release Time:2024-05-11

On Friday, Bowman, the governor of the Federal Reserve, who has the right to vote in the Federal Reserve FOMC, said that she thought it was inappropriate for the Fed to cut interest rates in 2024, and pointed out that inflation in the United States continued to be under pressure in the first few months of this year.

For the quarterly economic forecast report (SEP) submitted by Fed officials, Bowman revealed in the interview:

As far as I am concerned, the interest rate cut in 2024 has not been included in my economic forecast. I still expect to maintain the current interest rate level for a longer period of time, which remains my basic position.

Bowman said that after several months of disappointing inflation data, it will take her longer to be confident that inflation will return to 2%, which is a prerequisite for interest rate cuts. "So my expectation is that there will be several months of progress and maybe several meetings, and then I may feel comfortable with cutting interest rates."

She also said that there is an exception to her above interest rate policy expectation, that is, if there is an economic shock, it will lead the Fed to solve this problem through monetary policy.

Bowman urged Fed policymakers to act cautiously and carefully when moving towards the 2% inflation target. "The most important thing is that we should achieve the goal of 2% carefully, so as to maintain credibility in the fight against inflation."

Bowman believes that the American economy has positive momentum and points out that consumer spending has been strong.

In his speech, Bowman also emphasized the risks of commercial real estate in the United States, especially office buildings, because the COVID-19 epidemic caused more people to work remotely. She said that although the default rate has generally remained at a low level, the loan default rate of commercial real estate in some banks has increased:

We may see a decline in the value of real estate, a decrease in the cash flow of rental income or other circumstances that may lead to the impairment of commercial real estate loans or portfolios of some banks, especially if these loans expire and are refinanced at higher interest rates.

In its semi-annual report released on the same day, the Federal Reserve warned that the loans overdue rate of commercial real estate would rise. The Federal Reserve said that as the loans overdue rate related to office buildings continues to rise, banks are preparing for further losses. The overdue rate of some commercial real estate loans has soared above the pre-COVID-19 epidemic level. The focus of Fed officials is to improve the speed, intensity and flexibility of supervision as appropriate.

Bowman also mentioned some signs, such as the low liquidity of the US Treasury bond market. She said that in the end, the liquidity of the US Treasury bond market may amplify or mitigate the impact on the financial system.

Since the beginning of this week, many senior Fed officials have said that it will take longer to maintain high interest rates. On Friday alone, many officials spoke intensively:

Dallas Fed President Logan said that in view of the disappointing inflation data so far this year, it is still too early to consider cutting interest rates, and the current restrictive degree of Fed policy is uncertain. "I need to see some uncertainties on the road solved. We need to maintain a very flexible policy and continue to pay attention to the data to be released and observe how the financial situation evolves." Logan also mentioned that he hoped all banks would acquire and test the application of the discount window tool.

Atlanta Fed President Bostic said that the Fed is still expected to cut interest rates this year, and it is expected to cut interest rates by 0.25 percentage points this year. Bostic is one of the senior officials of the Federal Reserve, who poured cold water on many interest rate cuts this year.

Baldin, chairman of the Richmond Fed, said that the current US economic situation requires the Fed to be thoughtful and patient in its monetary policy actions. With appropriate monetary policy, inflation in the United States will fall back to 2% in time. I hope to see that the inflation progress is sustained and extensive. The demand of American economy is steady, but not too hot.

Minneapolis Fed President Kashkali said that in the wait-and-see mode, he will identify whether the progress made in cooling inflation in the United States has stalled. He mentioned that it can slow down the economic growth of the United States or embrace immigrants, and science and technology allow workers to participate in the job market for a longer period of time.

Chicago Fed President Goolsbee said that FOMC monetary policy is relatively restrictive. If the rebound in inflation means overheating, we must keep inflation down to 2% at all costs. The housing market remains a major inflation challenge. We've had ups and downs in inflation, and now we're waiting to see, but there's not much evidence that American inflation is stagnant at 3%. For the Fed, what matters is long-term inflation expectations, not short-term inflation expectations.

After senior officials of the Federal Reserve, especially director Bowman, made hawkish speeches, the yield of US bonds accelerated on Friday.

Risk warning and exemption clause

The market is risky and investment needs to be cautious. This paper does not constitute personal investment advice, nor does it take into account the special investment objectives, financial situation or needs of individual users. Users should consider whether any opinions, viewpoints or conclusions in this article are in line with their specific situation. Invest accordingly at your own risk.

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