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What you need to know
- Chicago Federal Reserve Bank’s Austan Goolsbee stated that the interest rate would be cut by at least a “fair amount” next year in some of the first comments from central bankers after last week's projections disappointed investors.
- The markets reacted to Goolsbee’s comments in which he also addressed an inflation report that was favorable.
- Other officials also discussed the future of policy and how to maintain a balance between their mandates, which is keeping unemployment low and prices constant.
Federal Reserve officials sounded optimistic in response to Friday’s new inflation figures, despite their projections that the Fed Funds rate would be cut less in the coming year.
This week, central bankers revealed their projected policy paths. On average, they expect to cut rates in 2025 much more slowly than originally expected. They were lower too than investors and economists expected. This led to a drop in the stock market after the meeting.
However, individual members of the Federal Reserve's policy-setting committee struck a seemingly more optimistic tone Friday.
“Over the next 12 to 18 months, rates can still go down a fair amount, and whether that happens three months earlier or three months later, I don’t think is the most material thing,” Chicago Fed President Austan Goolsbee was quoted in an interview televised with CNBC. “The thing that’s material is we’ve gotten inflation down.”
Stocks moved upward after his comments, leading the S&P 500 to a gain of 1.8% at midday.
One reason for Goolsbee’s optimism was the November Personal Consumption Expenditures (PCE) index, which earlier in the morning showed an annual inflation rate of 2.4%, lower than economists expected. The inflation report was especially relevant because persistent inflation was one reason the Fed projected fewer interest rate cuts in 2025 than it had in a prior forecast.
Data Dependence Isn't Over
Goolsbee isn’t the only one who was pleased by the latest inflation report. New York Fed President John Williams also praised it. “encouraging news.” He said that if the Fed continues to see reports such as this, it could lower interest rates even though they may need some time.
“I think the baseline trajectory is moving down toward neutral rates. But we need to be data-dependent. And we have time to really assess the data, assess what's happening, and come to the best judgments based on the data, based on the outlook and the risk to achieving our goals,” Williams:
The Labor Market is Also on Central Bankers' Minds
Williams and Goolsbee were among several Federal Reserve officials who made remarks on public statements on Friday, the first day out of the blackout period following this week's meeting.
Beth Hammack, president of the Cleveland Federal Reserve Bank, was the lone dissenting voice against the central bank’s federal funds rate. Hammack argued a robust labor market will likely maintain inflation at high levels until 2025.
“I prefer to hold policy steady until we see further evidence that inflation is resuming its path to our 2% objective,” Hammack explained her disapproval in a written statement.
Mary Daly, the San Francisco Fed president who spoke to Bloomberg News before the report was released on inflation rates said that she prioritized the strength of the labor market over inflation.
“I don't want to see an unnecessary rise in the unemployment rate just to get a quarter ahead on the 2% goal,” Daly stated.
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