A senior Federal Reserve official expressed optimism that interest rates could decline “a fair bit more,” but emphasized that further evidence of inflation returning to the central bank’s target is necessary before supporting additional cuts.
The official pointed to strong economic growth and a stable job market as reasons for ongoing caution. “If we could get some more improvement on the inflation side, I think rates can still keep going down a fair bit more, but we just need to see the progress on inflation,” he stated in an interview. “And we need to see that the job market remains steady like it has been for a couple of months here.”
This perspective follows the latest Consumer Price Index report, which showed prices rose 2.4% over the prior year. When excluding the volatile food and energy categories, core prices increased by 2.5%. Both figures remain above the Fed’s long-term target of 2%.
While acknowledging some encouraging signs in the report, the official highlighted persistent concerns, particularly regarding services inflation. He noted that goods prices, which are affected by tariffs, appeared to be under control. However, he worries that higher services inflation is “not tamed” and tends to be more stubborn. “The more concerning part is we’re still seeing pretty high services inflation, which is a thing which tends to be persistent,” he said.
The official also suggested that the Federal Reserve has room to lower rates before reaching a neutral level that neither spurs nor restricts economic growth. When asked about the current policy stance, he responded, “I don’t know how restricted we are.” He concluded by stressing the need for tangible improvement, stating, “Inflation’s been above the target for more than 4.5 years now, and we need to see improvement in inflation, not just count on that it will improve on its own, before we start making the rate cuts.”
Following the remarks, financial market data indicated that investors overwhelmingly expect the central bank to hold rates steady at its next policy meeting.
