Three Federal Reserve officials stated on Monday that they expect the Fed to continue cutting rates next year, but did not say they are committed to the next rate cut later this month.
"Hawkish" Governor Waller: Inclined to cut rates in December.
Federal Reserve Governor Waller indicated that he is inclined to vote in favor of a rate cut at the upcoming Federal Open Market Committee (FOMC) meeting later this month, although the data released prior to that may prove that maintaining stable rates is reasonable.
"At the moment, I am inclined to support lowering the policy rate at the December meeting, but that decision will depend on whether the data we receive beforehand unexpectedly improves and changes my inflation path forecast," Waller said in a prepared statement at a Fed framework review meeting hosted by the National Bureau of Economic Research in Washington.
Waller said recent data has raised concerns that inflation may stagnate above the 2% target, but he added, "There are no signs that" prices in key service categories should remain at current levels or rise.
Waller said in his speech, "I believe there is strong evidence that policy remains noticeably restrictive, and another rate cut would simply mean we are not pressing the brake pedal as hard. Another factor supporting further rate cuts is that the labor market seems to have finally reached balance, and we should be committed to maintaining that balance."
Waller briefly commented on the next framework review that the Fed will initiate in January next year.
He described the current flexible average inflation target strategy as a lagging perspective, whose guidance is to keep the inflation rate slightly above the Fed's 2% target to compensate for periods of too-low inflation.
Waller said, "When we designed this framework, we thought the low inflation problem would persist. But within less than a year, as inflation rates rose, the entire framework collapsed."
He stated, "Regardless of economic conditions, the monetary policy strategy should be robust." He also criticized the flexible average inflation target as not being intuitive or clear enough for the public.
New York Fed President Williams: More easing measures may be needed over time.
In contrast to Waller, who clearly supports a rate cut in December, New York Fed President Williams did not reveal whether he supports a rate cut in his speech on Monday. However, he stated that inflation and employment risks have become more balanced, and officials may need to further lower rates to move policy towards neutrality. He added that decisions will be made at each subsequent meeting.
In a speech prepared for an event hosted by the Queens Chamber of Commerce, Williams said on Monday, "I expect that over time, continuing to shift toward a more neutral policy setting will be appropriate. The policy path will depend on the data. If there is one thing we have learned over the past five years, it is that the outlook remains highly uncertain."
Williams stated that the economic situation is good, and the labor market is solid. The demand for workers has now cooled, and the supply of workers has increased, making it unlikely that the labor market will add inflationary pressure in the future.
He also mentioned that while the inflation rate remains above the Fed's 2% target, there is reason to believe it will reach that target, citing a slowdown in inflation rates for goods and services excluding food, energy, and housing.
"Hawkish" voter Bostic: Keeping an "open" stance on December rate decision.
2024 FOMC voter and Atlanta Fed President Bostic stated on Monday that he has not yet decided whether a rate cut is needed this month, but still believes officials should continue to lower rates in the coming months.
Bostic wrote in an article published on Monday, "The risks facing the committee’s dual mandate of maximum employment and stable prices have changed, bringing them roughly into balance, and we should similarly begin to shift monetary policy to a position that neither stimulates nor suppresses economic activity."
Bostic stated that he believes inflation is on a sustainable path towards the Fed's 2% target, despite some bumps in the data. He also noted that there are no signs of rapid deterioration in the labor market, but policymakers need to remain vigilant about the risks facing inflation and employment.
In a separate call with reporters, he said, "I am open to whether officials will support a rate cut when they gather in Washington on December 17-18."
Bostic stated that he supports the recent rate cuts because inflation is expected to reach the Fed's 2% target. He also noted that the reduction in job vacancies demonstrates that restrictive monetary policy helps cool the labor market. Nevertheless, he emphasized that the labor market remains stable.
Bostic said, "These trends do not send a strong signal, nor do they indicate that the labor market is rapidly deteriorating or extremely tight. On the contrary, this data suggests that in the face of rising interest rates, the labor market is cooling in an orderly manner, and we have heard this perspective from our business contacts."
Bostic outlined several reasons he believes inflation will continue to decline. Specifically, he stated that softening rents will ultimately lead to a decrease in housing inflation, which has been a key issue in overall price pressures over the past year. Bostic said, "There are certainly upside risks to price stability," but added, "I do not think the recent bumps are a sign that progress on price stability has completely stalled."
When asked about the potential impact of tariffs that President Trump might impose on his economic outlook, Bostic said he would ask his staff to wait until there is a clearer understanding of what fiscal policies will be enacted.
Bostic said, "One of the things we've seen over the past six or seven years is that there have been many suggestions made, and those suggestions have changed a lot over time."
Fed officials began cutting rates in September after pushing them up to a peak of 5.25% to 5.5%, which helped ease inflationary pressures from a peak of 7.2% in mid-2022. However, after recent data showed continued increases in service sector inflation, investors in December futures contracts believe the rate-cutting cycle may pause. The personal consumption expenditure price index, excluding food and energy, rose 2.8% over the 12 months ending in October.
Although U.S. officials describe their policy as "restrictive," the domestic GDP grew by 2.8% year-on-year in the most recent quarter. Personal spending and business equipment spending remain strong.
Federal Reserve Chair Powell has been monitoring the risk of a weak labor market, but interpreting the data clearly is challenging due to the impacts of strikes and storms. The U.S. Bureau of Labor Statistics will release the non-farm payroll report for November on Friday.
The next FOMC meeting will be held in Washington from December 17 to 18.
Article reposted from: Jin Shi Data