Waller's current (October 14) speech: The issue of subsequent rate cuts can be dealt with less urgency than last month, and policy can be moved to a neutral stance at a cautious pace. The latest higher-than-expected inflation data is "disappointing".
Waller's speech on September 5: He is open to the possibility of a larger interest rate cut and will make this argument in due course. The balance of risk has shifted to the employment side of our dual mission, and policies need to be adjusted accordingly.
Kashkari's current (October 14) speech: "Further modest" rate cuts may be appropriate in the coming quarters. The labor market remains strong, and the recent employment report "is encouraging, suggesting that a rapid weakening in the labor force does not appear imminent. Inflation has declined sharply from its peak but remains slightly above our objective."
Kashkari's speech on October 7: The balance of risk has shifted from inflation to unemployment, and we are very confident that inflation should fall back to our target level of 2%.
In their last speech, the two were almost all in the same position: inflation is not a concern, but there are problems in the labor market, and interest rates should be "front-loaded" (a large interest rate cut without seeing evidence of economic slowdown and recession). Now the situation is completely the opposite. The two have re-expressed their concerns about inflation, and are beginning to be optimistic about the job market, and interest rates should be "cautiously cut."
What they are suggesting now is not just a "pause in November" but a "slow rate cut" before the "last" rate cut. The recent improvement in economic indicators and the higher-than-expected CPI have led some people to believe that the Fed's decision to cut interest rates by 50 basis points in September was a mistake.
3. This is the opening of this week. If more officials express such views in the future, the market will reprice the "stronger dollar" that was not previously priced in.
Since there is still some time before the Fed's November meeting, the current stage should be a free expression stage for Fed officials, with the purpose of allowing the market to digest various possibilities. The Fed chose a very good time, at a stage when the market lacks hype topics, so as not to cause the market to overreact. But the reason why the market is still relatively calm is that only a few people feel that changes are happening, and when most people notice it, the changes have already happened.
The market currently estimates that there is about an 18% chance that the Fed will not cut interest rates at its November meeting, reflecting a 42 basis point rate cut in the remaining two meetings this year (45 basis points last Friday).