This week, several Federal Reserve officials delivered hawkish speeches, increasing uncertainty about the prospects for rate cuts.
On November 21, local time, Chicago Fed President Austan Goolsbee said in a speech that he supports the Fed to further cut interest rates and is open to cutting interest rates at a slower pace. In the past year and a half, inflation has fallen and is moving towards the Fed's 2% target, the labor market has cooled, and the economy is approaching stability and full employment. He believes that interest rates in about a year should be a little lower than the current interest rate level.
Tom Barkin, president of the Richmond Fed, said in an interview with the media that current data shows that the economy is "quite prosperous" and that the upcoming interest rate decision depends on the data. If inflation remains above the target, there is reason to be cautious in cutting interest rates; if the unemployment rate rises, more forward-leaning is needed.
Barkin said the Fed’s recent policy could be described as a “recalibration” and that once the Fed enters the “normalization phase”, its policy settings will be closer to a neutral level and questions about the pace of rate cuts will become more relevant. The interview was published on November 21, local time.
On November 20, local time, Federal Reserve Board member Michelle Bowman said at an event that she tends to lower the policy rate cautiously to better assess the Fed's distance from the end (rate cuts), while recognizing that the inflation target has not been achieved and closely monitoring changes in the labor market. Previously, she voted against the 50 basis point rate cut at the Federal Reserve's September interest rate meeting.
On the same day, Fed Governor Lisa Cook said in a speech at an event that she believes interest rates will be adjusted downward, but the magnitude and timing of the rate cut will depend on subsequent data and economic prospects. If the labor market and inflation develop as she predicts, it may be appropriate to lower interest rates until they are close to the neutral rate over time; if inflation progresses slowly while the labor market remains solid, (the Fed) may pause to cut interest rates; if the labor market weakens significantly, it may be appropriate to relax policy more quickly.
Boston Fed President Susan Collins said in a speech that more adjustments are expected from the Fed over time, gradually returning the policy rate from its current restrictive stance to a more neutral range. The intention is not to ease policy too quickly or too much, so as not to hinder progress in disinflation so far. At the same time, easing policy too slowly or too little could unnecessarily weaken the labor market. Rate cuts will be decided on a meeting-by-meeting basis based on data, rather than a preset action plan.
Fed Chairman Powell also "played hawkish" last week. On November 15, local time, Powell said at a Dallas Fed event that the U.S. economy has not sent any signal that the Fed needs to cut interest rates as soon as possible, and the current strong economy gives the Fed the ability to make cautious decisions.
This week, market expectations for the Federal Reserve to cut interest rates in December have declined. According to data from CME Group, as of press time, the market expects the probability that the Federal Reserve will lower the target range of the federal funds rate by 25 basis points in December is 59.4%, down 2.5 percentage points from 61.9% last week; the probability of maintaining unchanged is 40.6%, up 2.5 percentage points from 38.1% last week.
Data released by the U.S. Bureau of Labor Statistics on November 13 showed that the U.S. CPI rose 2.6% year-on-year in October, in line with market expectations of 2.6% and the previous value was 2.4%; the core CPI rose 3.3% year-on-year, in line with market expectations of 3.3% and the previous value was 3.3%.
In the early morning of November 8th, Beijing time, the Federal Reserve lowered the target range of the federal funds rate by 25 basis points to 4.5%-4.75%, in line with market expectations. The interest rate resolution was passed unanimously. Prior to this, the Federal Reserve had lowered the target range of the federal funds rate by 50 basis points to 4.75%-5% in the early morning of September 19th, Beijing time, which was the first interest rate cut in four years.
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