Fed's Cook Seeks More Confidence on Inflation While Kashkari Says Consumers Feel a Disconnect

While inflation has made progress in recent months, Federal Reserve Governor Lisa Cook said she still needs to see more data before agreeing to reduce interest rates. “I would like to have greater confidence that inflation is converging to 2% before beginning to cut the policy rate,” Cook said. 

Cook cited some reasons to think consumer spending would moderate this year, especially pointing to increased delinquencies on auto loans and credit cards.

In a separate event, Minnesota Federal Reserve Bank President Neel Kashkari told the Northside Economic Opportunity Network that even though price pressures are improving, a lot of consumers still feel prices are too high, especially for groceries.

“We’re not promising you [prices] are going to go down to where they were before, so that’s a fundamental disconnect,” Kashkari said.  While the latest inflation report showed a spike, price growth has continued to slow. 

"We still have some work to do but are making good progress,” he said.

Fed's Harker Looking For Transportation, Shelter Costs to Moderate Before Rate Cuts

Philadelphia's Patrick Harker was the latest Federal Reserve president to pump the brakes on interest rate cut expectations Thursday.

Harker told a University of Delaware audience that inflation's path to the Fed's target rate of 2% has not yet been “verified. While the economy may be near the point where the Fed can begin to cut rates, he said he still didn’t know when officials would get there.

“I find our greatest economic risk comes from acting to lower the rate too early, lest we reignite inflation and see the work of the past two years unwind before our eyes,” Harker said. 

Specifically, Harker said he was looking to see prices moderate in transportation, food, and shelter because they are large portions of household budgets. While shelter and transportation costs have remained elevated, food price growth has tapered off, he said.

He also noted that consumers’ expectations for inflation in the future are beginning to fall in line as consumer spending remains strong.

"This is a promising signal and one that we will be looking at closely in other areas of the economy as it has largely been the American consumer who has kept on the path of achieving an economic soft landing,” Harker said. 

-Terry Lane

Existing Homes Aren't Getting More Affordable

A downtick in mortgage rates helped to push would-be buyers and sellers into the market in January, slightly unsticking a housing market that’s been gridlocked.

Sales for existing homes were up 3.1% from December to a seasonally-adjusted annual rate of 4 million, its highest since August, the National Association of Realtors said Thursday. Homebuyers had slightly more options too, with the number of homes for sale edging up 2.0% from the month prior to more than 1 million.

However, more supply has not pushed down prices as many have hoped. Houses sold for a median price of $379,100, the highest in any January on record, the association said. "With homebuyers taking advantage of lower mortgage rates, low levels of inventory have kept upward pressure on prices. The combination of relatively higher mortgage rates and higher home prices will continue to make housing less affordable to many potential homebuyers." wrote Wells Fargo Economists Sam Bullard and Patrick Barley.

Read more about existing home sales here.

Mortgage Rates Rise Again This Week

Mortgage rates rose again this week, according to Freddie Mac.

The average interest rate on a 30-year fixed-rate mortgage was 6.9% this week, up from 6.77% last week. Interest rates haven't been this high since mid-December.

Mortgage rates have been trending down since they hit a peak of 7.79% in October, according to Freddie Mac. The falling rates had pulled more shoppers back into the market, but the last couple of weeks' increases could push them back to the sideline. "Many existing homeowners remain reluctant to put their properties up for sale until borrowing costs come down further," wrote BMO Capital Markets' Senior Economist Priscilla Thiagamoorthy. "And with the Fed signaling it’s in no rush to cut rates anytime soon, we expect activity in the resale market to remain muted in the first half of the year."

Fed's Jefferson Sees Rate Cuts This Year, But Warns About Going Too Fast

One Federal Reserve official has been encouraged by progress on inflation and signs that consumer spending will soften but is still cautioning against cutting rates too quickly.

Federal Reserve Board of Governors Vice Chair Philip Jefferson said rate cuts could come “later this year,” but reiterated sentiments by his colleagues saying more data was still needed on the path of inflation. In remarks to the Peterson Institute for International Economics Thursday, Jefferson noted inflation has trended lower, but said historic examples show the dangers of cutting too quickly.

“Excessive easing can lead to a stalling or reversal in progress in restoring price stability,” Jefferson said, pointing to the Federal Reserve’s actions in 1967 when inflation shot up after rate cuts. Additionally, an “unanticipated shock” could shake the economy, he said. Consumer spending could remain stronger than anticipated or unemployment could rise quicker than expected. Geopolitical events like conflict in the Middle East could create unexpected shocks to commodity prices as well.

Jefferson’s remarks come after minutes from the latest Federal Open Market Committee meeting were released yesterday, showing many officials were concerned about cutting interest rates too soon.

Recent remarks from Federal Reserve officials have undercut investors’ anticipation of an early interest rate cut. Investors now are only pricing in a 4.5% chance that the Federal Reserve will cut rates on March 20, down from 42.3% a month ago, according to the CME Group’s FedWatch Tool.

-Terry Lane

Services Soften As Manufacturing Surges

Companies slowed their growth in February, as activity in the service sector softened and manufacturing surged.

According to data released Thursday by S&P, service industry companies slowed overall business growth. The purchasing managers' index for services came in at 51.3, a three-month low. That's short of economists' expectations and lower than the prior month's reading.

Manufacturers, on the other hand, surged past economists' expectations, coming in at a 10-month high. At 52.3 the manufacturing PMI was three points higher than the prior month and more than two points higher than economists expected.

Unemployment Claims Drop To Four-Week Low

It’s still pretty rare to get laid off these days, it seems.

Seasonally adjusted, 201,000 people filed new claims for unemployment insurance the week ending Feb. 17, the Department of Labor said Thursday. That was 12,000 fewer than the week before, hitting the lowest in four weeks, and a relatively low level by historic standards.

The persistently subdued level of unemployment claims lately is one of several signals that the labor market is staying healthy—or at least avoiding any kind of mass layoffs—despite longstanding predictions of a recession.

Many experts have expected a recession and widespread job losses because of the Federal Reserve’s campaign of anti-inflation interest rate hikes, which have raised borrowing costs on all kinds of loans, effectively throwing sand into the gears of the economy to deliberately slow it down.