Julian Howard, chief investment officer of GAM Multi Asset Solutions, said that Federal Reserve officials seemed to have "no idea" about inflation in the United States. His comments come as Federal Reserve policymakers have been urging patience with interest rate cuts in recent weeks. They believe that the decline in inflation is lower than previously expected, and it is still too difficult for the Federal Reserve to promote loose monetary policy. Julian Howard said, "I think their message is that they don't know anything."
The Federal Reserve Waller said on Tuesday that he needs to see more data to prove that inflation is weakening before supporting interest rate cuts. He said at an event of the Peterson Institute for International Economics in Washington: "I need to see good inflation data for a few months when the labor market is not significantly weak, and then I can rest assured to support the stance of easing monetary policy."
Waller's comments were echoed by other Fed officials, including Boston Fed Chairman Collins. Collins said: "I think the data is very complicated and takes longer than I thought before. We are in a very important period of patience."
However, Julian Howard said that Federal Reserve officials have not yet sent a clear message about their expectations, nor explained why inflation remains high. He pointed out: "As we all know, inflation is difficult to predict. I don't think they know what happened." "To be honest, this is a credibility issue." He added: "Now (policy makers) think inflation is declining, but the pace of decline is not fast enough."
The data released last week showed that the US CPI rose 3.4% year-on-year in April, slightly lower than the 3.5% in March, far lower than the peak of 9.1% in June 2022, but still higher than the Federal Reserve's target of 2%. Julian Howard said: "The inflation rate did start to decline, but then it seemed to stay at about 3.5%. Everyone was trying to find an explanation for why it stayed at 3.5%. I think this is a challenge."
Julian Howard added that the stock market seems to be coping with high inflation, and has also adjusted its expectation of interest rate cut, which is far lower than that earlier this year. He attributed the mild reaction of the market to changes in large stocks. He explained that these companies currently have a high level of cash and can make relatively risk-free investments, such as short-term US debt.
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