Fed Officials Curb Investor Enthusiasm: 'I Can't Say We're At The Level To Hold'

Recent statements from Fed members have been more hawkish than expected, dampening the market's enthusiasm for a rate-cutting cycle to begin later this year.

On Tuesday, Federal Reserve Bank of Cleveland President Loretta J. Mester said that a rate hold in June should not be taken for granted, while also emphasizing the need of keeping a watch on recent bank stress, which might constrain credit and impede the economy.

“The Fed needs to stick with what it's doing to curb inflation, and I can't say we're at [the] level to hold given stubborn inflation,” Mester said at a conference in Dublin. She added that more data are needed to make a policy decision in June. 

The U.S. dollar index, which is tracked by the Invesco DB USD Index Bullish Fund ETF UUP, was flat on Tuesday, following a lower-than-expected increase in U.S. retail sales in April. 

Mester's comments followed pushbacks to current market pricing from several of her colleagues over the preceding hours.

• Atlanta Fed President Raphael Bostic said he expects rate rises to be paused in June, but he does not anticipate rates to be dropped even if the economy enters a recession. 
• Minneapolis Fed President Neel Kashkari stated that the Fed has more work to do and "we shouldn't be fooled by a few months of good data." The policymaker, who is a 2023 voting member in the Committee, warned that despite a slowdown in inflation, it remains persistent.
• In an interview with the Financial Times on Monday, Richmond Fed President Thomas Barkin stated that he is not yet convinced that inflation is on a sustained downward trend, adding that he sees "no barrier to higher rates if inflation persists." Barkin said that he is "withholding [a] June meeting rates decision given data is still to come, uncertainty around bank credit and debt ceiling."
• Chicago Fed President Austan Goolsbee remarked that a rate hike at the last meeting was a "close call" and that a lot of the impact of rate hikes has yet to be felt by the economy. "Before the June meeting, the FOMC will continue to monitor data," Goolsbee added. 

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