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In response to market speculation regarding aggressive interest-rate cuts in the coming year, three additional Federal Reserve officials have joined a growing chorus in downplaying the depth of anticipated rate reductions. This echoes similar sentiments expressed by other central bank officials in the United States last week.
Chicago Fed President Austan Goolsbee expressed surprise at the pronounced market reaction to the Fed’s updated quarterly economic projections, signaling a potential rate cut. Goolsbee, in an interview on CNBC, remarked on the confusion surrounding the market’s interpretation of the Federal Open Market Committee’s (FOMC) speculative discussions about future policies.
Meanwhile, Cleveland Fed President Loretta Mester and San Francisco Fed President Mary Daly, both scheduled to vote on monetary policy decisions in 2024, suggested in separate interviews that expectations for early rate cuts in the next year were premature.
Despite the Federal Reserve maintaining rates unchanged in the latest meeting on December 13, market forecasts imply an expectation of three rate cuts in the next year, according to the median forecast. However, Wall Street economists, including those at Bank of America Corp., anticipate a steeper pace of easing, with projections of four quarter-point cuts in 2024 starting as early as March.
Mester cautioned that markets had gotten “a little bit ahead” of the central bank by anticipating early rate cuts. She emphasized that the focus should shift to determining how long monetary policy needs to remain restrictive to ensure sustainable and timely inflation reaching the 2% target.
In a separate interview with The Wall Street Journal, Daly acknowledged the appropriateness of policymakers contemplating rate cuts in 2024, given the easing of inflation this year. However, she cautioned against premature speculation on the timing of such cuts, emphasizing the need for patience.
The comments from these officials echo similar sentiments from New York Fed President John Williams and Atlanta Fed Chief Raphael Bostic, who emphasized the necessity of observing “several months” of data to gain confidence in the sustained decline of inflation.
Goolsbee acknowledged the significant cooling in prices this year but noted that they have not yet returned to the central bank’s target range. He emphasized the need for vigilance in achieving the dual mandate goals and suggested that concerns about both sides of the mandate persist until inflation aligns with the target range.
As the market awaits the November data on the Fed’s preferred inflation gauge, these remarks underscore the cautious approach of Federal Reserve officials in navigating the path of monetary policy amid evolving economic conditions.
