Despite recent data showing an increase in U.S. inflation, senior Federal Reserve officials still hinted that they do not currently intend to take emergency rate cut measures. On Thursday, several Federal Reserve officials gave speeches emphasizing their focus on inflation, but unanimously indicated that a rate cut is not imminent.
The San Francisco Fed President stated that her confidence in a gradual decline in housing inflation is increasing, while the Atlanta Fed President believes that starting to cut rates in the summer would be appropriate. The Chicago Fed President warned against overinterpreting single-month data.
The Federal Reserve has previously made it clear that, given the resilience of the U.S. economy and labor market as well as the ongoing risks to the inflation outlook, it is not in a hurry to take rate cut action. Recent data seems to have proven the necessity of this patient attitude, although the year-over-year increase of the core PCE price index slightly decreased to 2.8% in January, but the month-over-month growth rebounded to 0.4%, reaching the largest increase since April 2023.
"New Federal Reserve News Agency" reported that if Trump returns to the White House, current Federal Reserve Governor Waller could become the next Fed Chairman. Wall Street Journal reporter Nick Timiraos pointed out that Waller challenged traditional economics two years ago and proposed a novel economic framework, and current U.S. economic data seems to be developing towards his expectations.
Timiraos believes that Waller's accurate judgements on the labor market and inflation have continuously increased his influence within the Federal Reserve. If Trump is re-elected, Waller is expected to succeed the current Fed Chairman Powell, becoming the next chairman.
Meanwhile, there are also rising expectations for rate hikes from the Bank of Japan. Bank of Japan policy member Takada Hajime said that as the central bank's price target is expected to be achieved, the reason for ending the negative interest rate policy is becoming stronger. In his speech, Takada Hajime stated that despite uncertainties in the Japanese economy, the perceptions of consumers and businesses are changing, and the Bank of Japan should consider exiting the current flexible monetary policy measures, including ending the negative interest rate policy and the yield curve control framework.
Investors are preparing for the possibility of a narrowing interest rate differential between Japan and the U.S. If the Bank of Japan raises interest rates while the U.S. maintains its current rate or slows the pace of rate hikes, holding Japanese yen assets relative to U.S. dollar assets will become more attractive.
