Federal Reserve officials expressed cautious optimism this week that inflation remains on a downward trajectory, as they downplayed the odds of further interest rate hikes but said more progress is needed before delivering a cut. In a Tuesday speech, Fed Governor Christopher Waller said the data suggest inflation is not accelerating, likely making additional rate hikes "unnecessary." However, unless the labor market weakens significantly, "I need to see several more months of good inflation data before I would be comfortable supporting an easing in the stance of monetary policy," Waller added. Loretta Mester, President of the Cleveland Fed, also said she needs to "see a few more months" of encouraging inflation data, while Boston Fed President Susan Collins noted that inflation figures have been mixed. Atlanta Fed President Raphael Bostic, worried about reigniting price pressures, said he would "rather wait longer" before backing a rate cut.

Inflation eased in April after a discouraging streak of data in the first quarter, raising hopes that policymakers will feel comfortable cutting rates later this year. Inflation is still well above the Fed's 2% target, and members of the policy-setting committee indicated that rates may need to remain at their current level for longer to achieve price stability, according to minutes of their last meeting published on Wednesday. In a new post on The Bond Blog, PGIM Fixed Income discusses why the case for rebalancing into bonds is compelling during times when central banks are on hold or cutting rates.