Two senior officials of the Federal Reserve lean dovish, with the "third in command" stating that interest rates will eventually be lowered, but consumer housing inflation expectations have surged

On Monday, May 6th local time, the "third in command" of the Federal Reserve with permanent voting rights in the FOMC, New York Fed President Williams, stated that the Fed will ultimately cut interest rates based on overall data. However, he cautioned that data may fluctuate in unpredictable ways.

Williams' statement "we will eventually cut interest rates" boosted the performance of US bonds on that day. The yield on the US two-year Treasury note fell by 0.85 basis points to 4.8075%. Prior to Williams' speech, it rebounded to a daily high of 4.8222% at 23:14 Beijing time, and had previously dropped to a daily low of 4.7846% at 20:31.

Williams stated that the signs shown in the past year and a half have been generally positive, but Fed policymakers need to see more evidence indicating that things are moving in the direction we hope to see, whether in terms of inflation or economic balance, before making decisions based on these.

Williams mentioned that the Fed's balance sheet reduction is progressing smoothly. "We have seen the balance sheet decrease by over $1.5 trillion, but the market has not been greatly affected."

Williams expects the US GDP growth rate to slow to a certain extent in 2024, but it will still perform well. The expected slowdown is due to many signs indicating that US households are being more cautious in their spending.

Williams also mentioned that the New York Fed is in the early stages of studying the application of artificial intelligence (AI) technology. It is premature to judge how AI will affect long-term economic trends.

This year's FOMC voter and Richmond Fed President Barkin stated that the inflation data since 2024 has been disappointing, but he optimistically expects that the current monetary policy can lower US inflation to 2%, believing that the impact of high interest rates has not yet fully manifested. Time will prove whether the restrictive nature of the FOMC's monetary policy is effective. The strong labor market provides the Fed with time to gain confidence in the sustainability of a downward trend in inflation before cutting rates.

Barkin also warned that housing and service prices are high, posing a risk of keeping US inflation high. Sellers are still trying to raise prices and will continue to do so until buyers push back strongly. It will take some time for US service sector inflation to cool down. Reliable supply growth will help further cool down inflation. "The risk is that continued high housing and service sector inflation, as we receive less help from commodities, will keep overall inflation above our target. This is what we have seen so far this year."

Barkin stated that it is unknown whether there will be a revision in the FOMC's interest rate outlook in the June Summary of Economic Projections (SEP). He also did not disclose when the Fed is expected to cut interest rates.

Barkin also stated that the US economy is not overheated. Recent data has confirmed that the Fed's thoughtful approach is valuable.

On the same day, according to the latest US Consumer Housing Expectations Survey report released by the New York Fed, the expected rate of one-year house price increases has accelerated again, and US renters' expectations of owning a home have hit a historic low:

• The expected increase in the one-year housing price in February has risen to 5.1%, with a forecasted increase of 2.6% for the same period in 2023, the second highest on record.
• The expected increase in the five-year housing price in February is 2.7%, compared to a forecasted increase of 2.8% for the same period last year.
• The expected increase in the one-year rental price in February is 9.7%, compared to an expected increase of 8.2% for the same period last year