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Fed Officials Unworried by CPI, Some Open to November Rate Pause
Data released on Thursday showed that the U.S. CPI inflation rate in September exceeded expectations, signaling a recent halt in the process of inflation decline. Analysts believe that the higher-than-expected inflation data, coupled with the strong performance of last week's U.S. non-farm employment report, may intensify discussions on whether the Federal Reserve will choose a small rate cut next month or pause rate cuts after a significant reduction in September.
On Thursday, several high-ranking officials from the Federal Reserve spoke. Most of them believe that although U.S. inflation has not yet reached 2%, they are confident that inflation is moving in the right direction and are not overly concerned about the higher-than-expected September CPI inflation report. However, Atlanta Fed Chairman Bostic, who is not considered hawkish and is a voting member this year, said that based on the recent mixed data, he is absolutely open to the idea of pausing rate cuts in November.
Looking at the latest dot plot released by the Federal Reserve in September, officials plan to cut rates by half a percentage point before the end of the year, with many indicating they are monitoring the dynamics of the labor market.
Although U.S. inflation in September exceeded expectations across the board, the initial jobless claims data announced that day soared to the highest in a year. Investors are placing more weight on the impact of a slowing labor market, with traders betting the likelihood of a 25 basis point rate cut in November rising to over 80%.
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The Federal Reserve's third-ranking official: The downward trend in inflation remains quite solid.
John Williams, the third-ranking official of the Federal Reserve and President of the New York Fed, stated that the inflation rate has not yet reached the 2% target, but he is confident that inflation is moving in the right direction. Despite minor setbacks, the overall downward trend in U.S. inflation remains quite solid. The cooling of inflation is widespread, and various labor market indicators suggest that labor is unlikely to be a source of price pressure.
Williams believes that the risks to achieving inflation and employment targets have been better balanced, and the data paints a picture of the U.S. economy having regained balance. It is appropriate to shift monetary policy towards neutrality over time. As progress is made in achieving price stability, shifting to a more neutral monetary policy stance will help maintain the strength of the economy and the labor market. The Federal Reserve will continue to make policy decisions based on economic data.
Williams praised the U.S. labor market for remaining robust despite cooling over the past year. He pointed out that this should provide the Federal Reserve with room to adjust interest rates to a level that neither drags nor stimulates the economy.Chicago Fed President: Not Too Worried About Higher-than-Expected September CPI
Chicago Federal Reserve President Goolsbee stated that the latest U.S. inflation data are essentially in line with expectations. The overall trend shows that the level of inflation has significantly decreased. He is not too concerned about the September CPI inflation report being higher than expected.
Goolsbee said that he completely agrees with the previous views of Federal Reserve Chairman Powell. There is a need for more thought on the dual mandate of the Federal Reserve. Goolsbee insists that the Federal Reserve is no longer solely focused on price pressures. "The overall trend over 12 to 18 months is clearly that inflation has significantly decreased, the job market has cooled, and the job market has reached what we consider to be full employment levels."
Goolsbee said that the Federal Reserve must take a longer-term perspective and closely monitor current economic data. He mentioned that data such as job vacancies, turnover rates, and hiring rates need to be paid attention to.
Goolsbee is considered more willing to support rate cuts than many of his Federal Reserve colleagues. He said that in recent months, the Federal Open Market Committee (FOMC) has gone through a series of closely contested meetings on the issue of rate cuts, and he expects that there may be more such closely contested meetings within the Federal Reserve in subsequent FOMC meetings.
Richmond Fed President: Increasing Confidence in Controlled InflationRichmond Fed President Thomas Barkin stated that inflation is moving in the right direction. The level of inflation has significantly decreased, but it is not yet time to declare victory over inflation. There is growing confidence that inflation is under control.
Barkin said that the Federal Reserve should have started raising interest rates in 2021. If the Fed had begun raising rates earlier, it would not have been necessary to raise them too quickly or by a large amount. The Fed is trying to balance the risks to the job market and inflation.
Barkin expects that lowering interest rates could risk heating up demand in the real estate market. The growth in demand for housing in the United States may outpace the level of supply.
Barkin also mentioned that the increase in U.S. debt could risk rising borrowing costs.
Atlanta Fed President: Open to Pausing Rate Cuts in November
This year's voting member and Atlanta Fed President Raphael Bostic voted in favor of last month's substantial rate cut of 50 basis points, at which meeting he anticipated another quarter-point rate cut for this year. Bostic recently said that he fully supports the decision to lower rates by half a percentage point last month, as the Fed has kept rates at a 20-year high for a considerable period.
Bostic stated on Thursday that, depending on the economic outlook, he believes it would be reasonable to either cut rates at both of the remaining meetings this year or at one of them. However, the recent mixed data suggests that "perhaps we should pause the rate cuts in November. I am absolutely open to this. If the data unfolds as I expect, I am willing to take no action at one of the last two meetings."
Bostic said, "I believe we have the capacity to be patient and let things play out for a while longer. I think some elements in today's CPI report confirm this view."Bostic also said that he had long anticipated that economic data would show monthly fluctuations, which could complicate the detection of underlying trends. However, the latest data did not change his expectation that the Federal Reserve will need to carry out a series of rate cuts next year:
I have been saying that we should expect some volatility in the data—I've been using the word "unstable." We may receive unstable reports from time to time. But the question is, do they signal a new trend?
Bostic estimates that the so-called neutral interest rate, which neither stimulates nor slows economic growth, is between 3% and 3.5%, and he expects that rates will fall close to this level next year. "It's a journey towards neutrality, with the nuances being that you move 25 basis points here and 50 basis points there, and I don't think these are very significant."
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