The Federal Reserve held interest rates in June, announcing the decision after its FOMC meeting last week. While rates remain higher for longer, are there any signals as to when the Fed will start cutting rates?

There's still hope among experts that the Fed is still considering two rate cuts. Minneapolis Fed CEO and President Neel Kashkari believes it is "reasonable" that the Fed could wait until December — after the 2024 election — to begin cutting.

Former Chicago Fed President and CEO Charles Evans joins Market Domination to talk about the Fed's monetary policy outlook and what it will take for officials to start cutting rates while keeping on the path to their inflation target.

"The FOMC has been talking uniformly about how they need more confidence... They are not very detailed, they are not detailed at all in what it takes in order for them to become more confident," Evans explains, adding:

"And so, it's this, currently, somewhat opaque process as to how many good inflation reports are they going to need to see before they say, 'okay, I think we're finally going to get down to 2.' They have the benefit of a strong economy right now — the unemployment rate is 4%, historically that's quite low, and the funds rate's at 5.3%. And they must be asking themselves, 'why should I cut rates early until I absolutely know that I'm going to get down to 2?'

For more expert insight and the latest market action, click here to watch this full episode of Market Domination.

This post was written by Luke Carberry Mogan.

Video Transcript

The Federal Reserve searching for more confidence before starting the rate cutting cycle.

Minneapolis fed President Neil Kashkari hinting at December as potentially the time for a cut this year.

And Philadelphia Fed President Patrick Carer said one cut by the end of the year is now his base case.

But as the central bank awaits more data to inform future policy decisions, the risks to waiting begin pulling into focus, former Chicago fed President and Ceo Charles Evans is joining us now to discuss Charlie.

Thank you so much for being here.

So there's a lot of chatter about this now and about uh the balance of risks here.

What, what is your outlook for?

How many cuts we could get this year?

Yeah, sure.

It's a very interesting uh situation.

The Fed has been looking for inflation to come down now for quite some time.

I mean, in um 2022 inflation hit 9% on the CP I 7% on the PC and it's much too high.

That's what every FED participant says.

And so they're looking to get it down to 2% sustainably and they've made great progress recently.

Um and labor markets have continued to be quite strong.

And so with uh core P ce at about two or three quarters right now, they're still a ways from that 2%.

So as you just mentioned, uh 2% 2 participants just today sort of indicated one rate cut uh this year is what their baseline is.

They're looking to have more confidence that inflation is gonna start coming down from two and three quarters to 2%.

And that's the hard part.

Um And so they're gonna be looking for more months of uh improving inflation before they even really talk about.

I don't know, should they cut rates in December or, or what?

And what did you think there?

Um Charles just in terms of your own time, I'm I'm interested because you, you, you saw Neil Kashkari over the weekend on another network, Charles and he was suggesting, you know, it's reasonable to think maybe the fed now, you know, it waits until December.

Does that sound like, you know, the timeline?

That makes sense to you, Charles?

Well, I was not surprised that the media and sep for 2024 was only one rate cut this year.

The FO MC has been talking uniformly about how they need more confidence, confidence is what they need.

They are not very uh detailed, they are not detailed at all and what it takes in order for them to become more confident.

And so, um it's this um currently, you know, somewhat opaque process as to how many good inflation reports are they going to need to see before they say?

Ok, I think we're finally going to get down to 2%.

They have the benefit of a strong economy right now.

The unemployment rate is 4%.

Um, you know, historically, that's quite low and the funds rates at 5.3%.

And they must be asking themselves why should I cut rates early until I absolutely know that I'm going to get down to 2%.

The economy is not really struggling, but it's not struggling because of this, although individuals of course, are, are struggling with uh higher debt interest costs.

Um So I, I think, uh you know, I don't know how many good inflation reports they're gonna need to see and I don't know for sure if the most recent good inflation report is gonna continue.

I'm hopeful that that's the case and if it is maybe they start thinking earlier than December.

But uh right now December looks like uh the modal bed and, and it definitely seems as though federal reserve members right now are, are by and large more concerned about our re acceleration of inflation than they are about a slowing of the economy.

But we last week had the chance to talk with Allianz Chief Economic Advisor Mohammed Arian and he is not so convinced that that's sort of how the balance of risks are looking, listen to what he had to say.

So I think Chad Powell is correct in pointing out that there are two tails to the soft landing.

The soft landing is what he's targeting.

Um, but there are risks on both sides.

I think what he misses is the balance of that risk that the balance unfortunately is in favor of them being too late and the economy is slowing more than it should.

So I I'm curious, Charlie, if you think that the fed is appropriately cognizant of that risk, that Mohammed outlines, oh, I, I'm confident that they are cognizant of that risk.

I mean, Jay Powell has gotten that question at, you know, press conferences and he, you know, has said we are mindful of our dual mandate responsibilities and whether or not, um you know, the labor market is going to soften whether or not demand is going to soften at the moment.

There's not enough evidence that that is actually happening now.

That does seem unusual because the funds rate has been at 5.3% for quite some period of time.

And um you know, interest rate, interest costs are higher.

And so that must be getting in the way of some investment opportunities that businesses would like to undertake, but they really um are committed to getting inflation down to 2%.

They are undoubtedly embarrassed by the fact that inflation went up to 9% on the CP I 7% on the P CE and that it's their job to get inflation down to 2%.

They don't want to get stuck at 22 or three quarters percent.

I would say that the risks are not that the most likely risk or not, that inflation is going to re accelerate.

The most likely upside risk is that it's going to stall out, that it's going to require a softening economy in order to get inflation down.

I think they're mindful of that.

They're looking for softening and if they get it, then they're going to sort of try to split the difference probably, but they're really committed to getting inflation to 2%.

Um That's a very stiff performance bar and I think that's perhaps what made uh Mohammed Al Erian a little bit nervous that because they're focusing on that they might not pay attention to the softening.

I'm pretty confident that the FO MC is going to be mindful of all of those things.

Uh Charles, another question I got for you switching gears a bit retail sales tomorrow.

Charles, I should get your take.

General take on the American consumer.

How healthy, how, how resilient do they look to you?

The consumer has been surprisingly strong, they've been resilient throughout um you know, this episode.

Um I think that the, the high inflation has taken a toll on households.

Uh That's absolutely the case.

That's what every FO MC member says for quite some time.

I would say that, you know, at the lowest income groups, they have seen stronger wage growth in part to make up for the high inflation.

It's still the case of food prices are high, gas prices are high unaffordable.

Housing continues to be highly unaffordable.

Uh but the skew in income uh inequality, I think is sort of, uh probably left us with stronger uh consumer, uh a resilient consumer uh because of that.

And yeah, it undoubtedly retail sales will soften at some point because of the higher interest rates.

That's part of the Fed playbook over some period of time.

But at the moment, um looking at the economy, it still looks resilient, it still looks uh strong enough.

It looks like a soft landing in terms of uh the economy being at trend growth and no evidence yet of the unemployment rate moving materially above 4%.

Charlie.

Thanks so much for your insight.

Appreciate it.

Former Chicago Fed President Charles Evans.

Thank you.