The Fed's officials can’t seem to get their stories straight.

On April 3, Fed Chair Jerome Powell reaffirmed his expectations for multiple rate cuts this year, shrugging off the recent uptick in inflation.

“The recent data do not [...] materially change the overall picture, which continues to be one of solid growth, a strong but rebalancing labor market, and inflation moving down to 2% on a sometimes bumpy path,” Powell said at a conference in Stanford, California.

Powell appeared to be confident that slowing consumer prices and a cooling labor market would keep keep inflation in check, paving the way for the expected rate cuts.

But in stark contrast to Powell’s messaging, Atlanta Fed president Raphael Bostic told CNBC on the same day that he only sees one rate hike this year, likely in the fourth quarter.

According to Bostic, inflation is falling “much slower than what many have expected.”

“If the economy evolves as I expect, and that’s going to be seeing continued robustness in GDP, unemployment and a slow decline of inflation through the course of the year, I think it would be appropriate for us to start moving down at the end of this year, the fourth quarter,” he said.

Bostic’s comments carry weight, as he’s a member of this year’s FOMC—the committee responsible for voting on interest rates.

Bostic, Powell, and their FOMC colleagues will hold their next meeting from April 30 to May 1. Although markets think there’s virtually no chance the Fed will shift course on interest rates in a month’s time, messaging around inflation will be crucial.

Inflation is still too sticky for some Fed officials' taste

Bostic’s concerns about inflation are well-founded. As the head of the Atlanta Fed, his branch runs the “underlying inflation dashboard,” which measures various inflationary indicators.

Most of the inflation metrics tracked by the Atlanta Fed show cost pressures north of 3%, which is well above the central bank’s 2% target.

The Atlanta Fed’s “Sticky” CPI indicator, which includes a basket of items whose prices change relatively slowly, showed a 12-month growth rate of 4.4% in February.

As Creditnews reported, sticky inflation is also showing up at American factories, which is often a precursor for higher consumer prices in the future.

According to economist Wolf Richter, the recent acceleration in the producer price index eliminates the possibility that wholesale inflation will continue to hold down the overall inflation rate.

As Powell hinted, some Fed officials aren’t too worried about a slight acceleration in inflation, mainly because the overall trend is heading lower. The consumer price index came in at 3.2% annually in February, down from a peak of 9.1% in June 2022.

Despite notable improvements, some economists worry that cutting rates while CPI is above 3% could make it harder for policymakers to put the inflation genie back in the bottle.

The dangers of cutting rates too quickly

This concern was recently highlighted by JPMorgan’s senior economist, Joe Seydl, who called inflation a tricky variable to forecast in today’s economy.

Getting it wrong could have nasty side effects for consumers, who’ve been swinging from one extreme (high inflation) to another (debilitating borrowing costs).

“Some market participants worry that inflation could re-accelerate in 2025, moving past the 3% threshold in the wake of Fed rate cuts in 2024 and a possible pickup in shelter inflation,” Seydl said. Although this isn’t JPMorgan’s base view, it’s a risk that warrants serious attention.

Regarding the recent uptick in CPI, Jeremy Schwartz, senior U.S. economist at Nomura Securities, said: “Two months (of higher inflation readings) is too soon to declare that all is lost, but it certainly raises the risk that you have a little bit more of an inflation problem, and in that case, it makes sense to be cautious.”

Deutsche Bank economists were more direct in their interpretation of underlying inflation and what it could mean for the Fed.

“The main message from the March summary of economic projections should be that the Fed will have little tolerance for further upside inflation surprises, and if they were to occur, expectations for policy easing this year will be dialed back (all else being equal),” they wrote.

The U.S. government’s CPI reports have become the most closely watched economic indicators in recent months. The Bureau of Labor Statistics is scheduled to release the March CPI data on April 10.