Fed begin rate cut discussions

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The Federal Reserve is beginning discussions about potential interest rate cuts, but it is not expected to immediately set the stage for a rate reduction. Federal Reserve Chairman Jerome Powell and other officials have not signaled any plans to use their upcoming meetings to prepare for a rate cut. San Francisco Fed President Mary Daly has mentioned that it is 'premature' to consider interest rate cuts, emphasizing the need for more evidence that inflation is consistently moving back towards the 2% target1. Morgan Stanley's chief US economist, Ellen Zentner, expects the first rate cut to occur in June, suggesting that the Fed can afford to be patient. This sentiment is supported by the fact that the Fed will not be cutting rates to counteract a recession but rather to adjust policy in response to a significant drop in inflation1. Fed Governor Christopher Waller has indicated that with economic activity and labor markets in good shape and inflation declining gradually, there is no need to move as quickly or cut as rapidly as in the past1. This view is reinforced by stronger-than-expected retail sales data from December, which has led traders to see a less than even chance of a rate cut happening soon1. Atlanta Fed President Raphael Bostic has expressed a desire to avoid rapid policy changes, suggesting that the central bank may delay a rate reduction until May. However, once the Fed decides to cut rates, it could move quickly according to economist Claudia Sahm, a former Fed staffer1. Federal Reserve Bank of Chicago President Austan Goolsbee has stated that officials should consider cutting interest rates as inflation falls to avoid overly restrictive monetary policy, but he also emphasized that decisions will be made on a meeting-by-meeting basis3. Overall, while the Fed is open to the idea of rate cuts as inflation cools, the central bank is proceeding cautiously and is not expected to initiate rate cuts immediately. The timing and pace of any future rate cuts will depend on the trajectory of inflation and economic data13.
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