Inflation stubbornly refuses to retreat; two Fed voting members speak out: more inclined to maintain interest rates unchanged.

The two new voting members of the Fed who joined this year both stated on Tuesday that due to concerns about the inflation outlook, they are currently more inclined to maintain interest rates unchanged and continue to observe economic and price trends. Cleveland Fed President Loretta Mester stated at the Ohio Bankers Association Economic Summit in Columbus, Ohio that she believes the current monetary policy is in a "appropriate position" and can temporarily stand pat to evaluate future data and assess whether and how policy may need to be further adjusted. She mentioned that based on her own forecast, the Fed may keep interest rates unchanged for a considerable period of time. Mester pointed out that the level of inflation remains high and has been mostly flat over the past two years. She believes that the risk of inflation remaining close to 3% this year still exists, which has been a main feature of the past two years. She emphasized that it is difficult to support further easing policies without seeing clear and sustained evidence of prices falling. She is more willing to be patient and "a little slower" in assessing the effects of the three rate cuts last fall and the performance of economic growth, rather than making "micro-adjustments" to rates. In her view, the federal funds rate is currently around a "neutral" level, meaning it is not significantly restraining economic activity. She also stated that the risks of future interest rate movements are generally balanced. Although she expects inflation to moderate somewhat this year, she is closely monitoring the impact of tariffs on prices. She pointed out that many companies have reported that tariff increases have raised costs, with some passing those costs on to consumers and others indicating they may continue to raise prices in the future. In addition, increases in electricity prices and health insurance costs are also putting pressure on inflation. The other new voting member, Dallas Fed President Robert Kaplan, also stated in a speech in Austin, Texas that her concern about the "stubbornly high" inflation is increasing. She believes that the three rate cuts implemented last year to prevent worsening labor market conditions have objectively increased the risk of inflation rebounding. She expressed more concern about inflation not falling than about the economy overheating. Kaplan noted that the data in the coming months will test whether inflation is heading back towards the Fed's 2% target and whether the labor market can remain stable. If inflation does indeed decline and the labor market remains resilient, this would indicate that the current policy stance is appropriate and that further rate cuts are not needed to achieve the Fed's dual mandate. She added that if inflation falls while the labor market cools further, then another rate cut "may become appropriate." While Kaplan expects inflation to make some progress this year as the impact of previously raised tariffs recedes, she admitted that she is not fully convinced that inflation will smoothly return to the 2% target. She cited anecdotal evidence from Fed surveys indicating that tariffs still need to be passed on to end prices this year. Additionally, she stated that there is no clear sign of further cooling in core non-housing services inflation, which has been mostly flat since 2025. Regarding employment, Mester stated that the US labor market seems to have stabilized. She pointed out that the current unemployment rate is 4.4%, close to the level in September of last year, indicating a rough balance between job seekers and job vacancies. Initial claims for unemployment benefits are still low, and although the number of large-scale layoff announcements from companies is equivalent to historical averages, some companies have indeed announced layoffs. Mester predicts that, influenced by previous rate cuts and fiscal support, economic growth is expected to accelerate this year, which will stimulate more businesses to start investment projects, improve employment, and gradually reduce the unemployment rate over the year. Kaplan believes that the downward risks in the labor market have significantly diminished. She noted that although job growth slowed down last year, the monthly job growth rate has remained at a level sufficient to stabilize the unemployment rate since mid-2025. She expects robust consumer spending and business investment to continue to support the labor market.