Important points
Federal Reserve Governor Michelle Bowman said investors may be expecting the central bank to cut interest rates more than necessary. Central bankers are predicting a quarter-point rate cut at their next meeting, while traders are pricing in a rate cut of about 40 percentage points. Bowman commented on interest rates, but multiple Fed officials have not commented on interest rate policy since last week’s decision.
Just because the U.S. Federal Reserve cut interest rates more sharply than most expected last week, don’t expect central bank officials to continue cutting them sharply in the future, one central banker says. officials said Thursday.
Federal Reserve President Michelle Bowman said in a speech at a bankers conference Thursday that Fed officials will cut the influential federal funds rate at a pace that some investors expect. He said that this may not be possible depending on the economic situation.
Mr. Bowman last week voted against the Fed’s decision to cut rates, agreeing that it was time to cut rates but arguing that a 0.5 percentage point change was too large.
Bowman says inflation remains ‘uncomfortably’ high
Mr Bowman said inflation was “uncomfortably” above target, even though the labor market was still near full employment.
“While labor market data has shown signs of cooling in recent months, the continued high wage growth, solid consumer spending, and resilient GDP growth do not equate to real economic weakness or fragility,” Bowman said. ” he said.
Markets are pricing in a 50% chance of another big rate cut
Bowman said larger rate cuts could signal to markets that the economy is weaker than it appears or that additional “large” rate cuts could lead to a spike.
He said there was no need for a rate cut as deep as some investors were pricing in. Traders are pricing in about a 50% chance of a rate cut, according to CME Group’s FedWatch tool, which predicts interest rate movements based on federal funds futures trading data. At the next meeting in November, there will be a half-point reduction.
In their latest economic outlook, Fed officials predicted a quarter-point rate cut at this meeting, another cut at the December meeting, and a full rate cut next year.
Kugler expects further rate cuts
Investors may be pricing in more rate cuts than central bankers are predicting, but another Fed official reiterated that cuts are still in progress.
At a separate speaking event at Harvard University, Federal Reserve President Adriana Kugler said the central bank’s interest rate cuts would cause “unnecessary pain and weakness” in the economy as price pressures continue to ease. He said it would prevent it.
“If inflation continues as I expect, I support further cuts in the federal funds rate going forward,” he said.
Several Fed officials, including Fed Chairman Jerome Powell, spoke on the day, but only Bowman and Kugler mentioned interest rates and the economy. Chairman Powell is scheduled to speak at an economic conference next Monday, and his remarks could include a discussion of the Fed’s interest rate policy.
