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Consumers, investors, and the market itself are all tuned into inflation's increasingly apparent presence in 2024, drawing even more attention on when the Federal Reserve will finally pivot and start cutting interest rates.
Former Federal Reserve Bank of Richmond President Jeffrey Lacker sits down with Yahoo Finance to talk about why he thinks the Fed is "a bit over their skis" and if inflation persists, it's possible that officials may not issue "any rate cuts in this year at all."
"Policy needs to be restrictive enough. The key with monetary policy is always in a situation like this, is encouraging people to delay spending because it's the excess of spending over the economy's capacity that drives inflation," Lacker, currently the Senior Affiliated Scholar at the Mercatus Center, says. "You don't need to reduce spending so much as to cause a recession, but you do need to restrain it enough. The signs are there's a good chance that Fed policy isn't terribly restrictive right now, and isn't going to do the trick in getting inflation down."
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This post was written by Luke Carberry Mogan.
Video Transcript
JULIE HYMAN: Jeff, thank you so much for being with us. So everybody's trying to figure out what the Fed is going to do. I'm quite sure the Fed included, is trying to figure out what they want to do. Rick Rieder of BlackRock earlier said to us, the Fed wants to be able to cut here. And probably cut a couple of times. Do you agree with that assessment? And I guess, will they then be able to cut a couple of times given the recent data?
JEFFREY LACKER: I agree that they do seem to be anxious to get started on cutting rates. It looks like they're positioning to do so at the first time. It's credible for them to do so. But I think they're out a little bit over their skis. And I think they've got-- they went a little too far last year and encouraging views about rate cuts this year. And I think this recent stretch of inflation data over the last three months is a good reason why they would have stood themselves in better if they'd been a little more cautious last year.
It is quite plausible that inflation sticks right around here. This would be 3% to 4%. 3.5 to 4 on the CPI. Maybe three and 1/2 on the PCE core. And if it just persists at this level, they could easily not get any rate cuts in this year at all.
JOSH LIPTON: What needs to happen Jeffrey to get inflation back to target? Does unemployment have to ramp? Is that what needs to happen?