The Federal Reserve can end its interest rate hiking cycle if the labor market and economic growth continue to slow at the current gradual pace, the former president of the Boston Fed said on Wednesday.
Financial markets overwhelmingly expect the U.S. central bank to leave interest rates unchanged at its Sept. 19-20 meeting, but are about split on whether it will pause or hike rates in November, according to CME Group's FedWatch tool.
"As long as it looks like we're on a path to gradually get to 2% (inflation), there's no reason to hike further from here," Eric Rosengren, who was president of the Boston Fed from 2007 to 2021, told the Reuters Global Markets Forum.
Data released on Wednesday showed private payroll growth slowed significantly in August, while the personal consumption expenditures price index (PCE) excluding food and energy advanced at a downwardly revised 3.7% rate in the second quarter. On Tuesday, the U.S. Labor Department reported that the number of people quitting jobs in July dropped to levels last seen in early 2021.
That indicates the Fed's rate hikes are working to bring inflation down to the central bank's 2% target while the full impact of tighter policy has yet to be felt, Rosengren said.
He expects auto prices to decline and banks to keep slowing their lending, which will continue to put the brakes on economic growth and inflation through the end of the year.
However, interest rate cuts are unlikely to be on the table until core PCE falls "closer to 3% than 4%," Rosengren added.
Despite positive signs in the economic data, he said it is too early to say that the Fed has succeeded in achieving a "soft landing," a scenario in which inflation falls, unemployment remains relatively low and a recession is avoided.
"We'll have to have a little bit more time before we can say unequivocally that that's the case," he said.
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