Fed officials have signaled that further rate cuts could be on the horizon, given cooling inflation and a resilient but fragile U.S. jobs market.
However, one official suggested that not cutting rates in November could be an option.
The latest data showed that consumer price inflation slowed slightly to 2.4% in September, down from 2.5% the previous month. In addition, the increase in weekly jobless claims was partly attributed to the impact of Hurricane Helen. Policymakers expressed optimism about the current economic outlook as inflation approached the Federal Reserve’s 2% target and the unemployment rate hovered at 4.1%.
“We’re basically trying to freeze dual target performance exactly where it is right now,” Chicago Fed President Austan Goolsbee told CNBC, referring to the Fed’s price stability and full employment goals. “The vast majority of Fed policymakers believe that conditions will gradually improve over the next 12 to 18 months and interest rates will fall significantly from their current levels,” Goolsbee added.
New York Fed President John Williams echoed that sentiment at an event at Binghamton University, noting that the pace and timing of rate cuts would depend on incoming data. “Based on my current forecast for the economy, I expect it will be appropriate to continue to move the stance of monetary policy toward a more neutral environment over time,” Williams said.
Financial markets are signaling that the Fed will cut interest rates by a quarter point at its November meeting and that similar cuts will be made in the first half of next year. Futures pricing currently suggests that the policy rate could fall to 3.5% by the end of 2024. However, the probability of no rate cut in November is still 17%.
“I’m certainly open to it,” Atlanta Fed President Raphael Bostic told the Wall Street Journal in an interview about the possibility of a break in November. Bostic noted that the Fed had previously expected only a 25 basis point cut in its final two meetings of the year, a view shared by many other policymakers.
*This is not investment advice.