Federal Reserve's "Hawkish" Tone Returns: Rate Cut Uncertainty Rises, Patience Becomes the Main Theme

While the market is still debating how many more interest rate cuts can be made this year, Federal Reserve officials across the ocean have collectively poured cold water on the idea. On February 24, several top Fed officials spoke intensively, with remarkably consistent logic: inflation has not yet returned to the 2% “home,” so it’s too early to talk about further rate cuts.

From Boston to Chicago, from Richmond to Atlanta, “patience” and “watching” have become the new keywords in this policy discussion.

1. Collins: Rates Likely to “Pause,” Policy Near Neutral

● Boston Fed President Susan Collins gave a straightforward assessment during a panel discussion at her home turf. She said that given the recent resilience—not weakness, but an “unusual stability”—in the labor market, current interest rates probably need to be “maintained for a period.”

● Collins gave the current monetary policy a “health check”: after easing by a total of 175 basis points over the past year and a half, current rates are only “mildly restrictive,” and may already be close to the “neutral level” where neither acceleration nor deceleration occurs. Since the economy is now coasting on a flat road, there’s no rush to accelerate or brake.

● “We need more evidence to confirm that inflation is steadily returning to the 2% target,” Collins admitted. Although the baseline view remains that inflation will decline later this year, until concrete data is seen, the best approach is to keep a hand on the brake and observe.

2. Goolsbee: 3% Inflation Is Not Safe, No Need to Rush

● Compared to Collins’ moderation, Chicago Fed President Austan Goolsbee’s remarks are sharper. At a National Business Economics Association meeting, he directly stated that further rate cuts are inappropriate until more evidence shows inflation is continuing to cool.

● Goolsbee did some quick math for the market: although inflation has fallen from its peak, December’s PCE inflation still hovers at 2.9%, with core PCE at 3%. He issued a vivid warning—“Inflation at 3% is not a safe position.” It’s like a fever dropping from 39°C to 37.5°C—better, but still not normal 36.5°C, and stopping medication too soon isn’t advisable.

● He even revisited the past lesson of “misjudging inflation as temporary,” implying policymakers shouldn’t fall into the same trap twice. Regarding whether rates can be cut again this year, Goolsbee remains open but emphasizes that it depends on data: “If price pressures ease, multiple cuts in 2026 are possible, but only if inflation truly heads back to 2%.”

3. Barkin’s Balancing Act: Employment and Inflation, Both Must Be Managed

● Richmond Fed President Tom Barkin spoke more about the delicate balance of the Fed’s “dual mandate.” He pointed out that while the downside risks to employment have decreased, inflation data remains “stubbornly above target.”

● “No one wants inflation to stagnate, and no one wants the labor market to weaken further,” Barkin summarized the current dilemma. The good news is that he believes the Fed is “in a favorable position,” with enough room to observe economic developments without rushing to make a decision.

4. Market Response: Diminishing Rate Cut Expectations, Dollar Rises

● This series of hawkish statements quickly stirred ripples in forex and precious metals markets. BofA Asia’s analysis noted that Fed officials’ comments significantly cooled market expectations for rate cuts, providing momentum for the dollar index to rebound. The latest data shows a 98% probability that the Fed will hold rates steady through March, and the market’s expectation for a June rate cut has fallen from above 50% to around 44%.

● Meanwhile, spot gold briefly surged but then fell back below $5,100 per ounce, reflecting a market re-pricing in a high-interest-rate environment.

5. Unique Perspective: Is AI an Enemy or Friend?

● Notably, a “new variable” has quietly entered the inflation discussion—artificial intelligence. Collins, in her speech, unusually focused on technological change. She said she is closely watching whether “high productivity helps to reduce inflation.”

● She revealed that current corporate feedback indicates AI mainly “improves work efficiency rather than replacing workers.” If AI can help companies increase output without significantly raising labor costs, it could help ease supply-side price pressures and become a “magic weapon” in bringing inflation back to 2%. However, some analysts worry that AI-driven data center construction and energy demand could also become new inflation drivers.

● Additionally, Atlanta Fed President Bostic raised another deep consideration: the unemployment rate may be heading toward a higher “new normal.” If the core issue in the labor market is skill mismatches rather than cyclical job shortages, blindly cutting rates may not save employment and could even reignite inflation.

● Overall, the Fed’s hawkish tone isn’t about completely shutting the door on rate cuts but about cooling overheated market expectations. Before the inflation “monster” is fully caged, patience in monetary policy will likely be the theme through spring 2026. For investors, rather than guessing the timing of the next cut, it’s better to closely watch each upcoming inflation and employment report—after all, data remains the Fed’s only current guide.