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 tame inflation and lowers them to help stimulate the job market. After months of climbing prices and positive hiring, some forecasters were beginning to expect a hike soon. Then, the department estimated that the year-over-year inflation rate fell to 3.5% in June, down from 4.2% in May. That means, overall, prices still rose, but at a slower pace than the month before.
Hassett called it an “amazing” report, and one of the best he’s seen in his career, in an interview on CNBC’s “Squawk Box.”
“If you’re watching the data, then, you know, there’s not really an excuse for raising rates right now,” Hassett told CNBC July 15. “Another report or two like this, then I think they’d be thinking the other way.”
For now, Fed officials say it’s just one positive report. While “core” inflation, the department’s measure of price changes excluding volatile food and energy, also fell, declines in headline inflation were driven in part by a 9.7% drop in gas prices in June — the same month the United States and Iran agreed to a temporary ceasefire that President Donald Trump has since declared “over.”
Not ‘Mission Accomplished,’ Warsh Says
During his congressional testimony this week, Federal Reserve Chair Kevin Warsh wasn’t as celebratory as Hassett.
“It’s one data point,” he said July 14, adding one of the reasons he created a data task force at the Fed is because he doesn’t want to over-read or cherry-pick data. “There might be some that look at this morning’s data and say, ‘Oh, mission accomplished. Everything’s swell.’ That is not my view.”
Trump has consistently called on the Fed to lower rates in his second term with hopes that cheaper borrowing costs could give a boost to the U.S. economy. While former Fed Chair Jerome Powell was often the target of Trump’s complaints, the president has not publicly pressured Warsh, whom he nominated to the role in January.
“We absolutely at the White House respect that Kevin Warsh is going to drive the committee to the right answer,” Hassett told CNBC.
What Are Fed Governors Saying?
Since stepping into the Fed chair role in May, Warsh has been adamant about the Fed delivering on its mandate to ensure price stability for Americans who have grappled with high inflation over the Fed’s 2% target for the past five years.
To achieve that, the Fed may need to raise interest rates “in the near term” if inflation continues to trend well above target, according to Fed Governor Christopher Waller.
“Sternly staring at inflation until it melts before our withering gaze is not an option,” Waller said July 13 ahead of the June inflation report’s release at the New York Association for Business Economics.
Fed Governor Lisa Cook said July 15 she is prepared to act if inflation doesn’t begin to slow but added she is willing to wait “a bit more time,” in remarks to the Exchequer Club of Washington, DC.
“I see it as prudent to give a bit more time to observe how inflation unfolds from here,” Cook said. “Going forward, though, I believe the risks continue to be strongly weighted toward higher inflation.”
‘Probably Going to Pass on July’
The Beige Book, a report that offers information on economic conditions across the Fed’s 12 districts, will also help inform policymakers’ decision at their next meeting.
Its latest release on July 15 showed U.S. employment rose in five districts and was little changed in the seven others. By comparison, only one district reported employment gains in the previous report released June 3.
Prices, on the other hand, increased overall, the latest Beige Book said. Nine districts reported moderate growth, two reported robust growth and one reported slight growth. Price growth was the same or slower across all 12 districts when compared to the previous reporting period.
“The speeches from Fed officials also reflected, ‘Hey, if we see really spiky inflation even fairly soon, we’ll shift our views more, but we need to see something like that for us to really pivot,'” Skanda Amarnath, Employ America executive director and former New York Fed analyst, told USA TODAY. “They’re probably going to pass on July.”
As of July 16, most forecasters expect policymakers will 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. Nearly half are still betting on a quarter-point hike after the Fed’s following meeting in September.
Contributing: Reuters
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