US Markets
Friday, December 15th, 2023 3:03 pm EDT
Key Points
- Rate Cuts Not Currently Discussed: New York Federal Reserve President John Williams clarified that discussions about rate cuts are not taking place within the central bank at the moment. He emphasized the current focus on assessing whether the monetary policy has achieved a sufficiently restrictive stance to bring inflation back down to the 2% target.
- Market Reaction to Fed’s Forecast: Following the Federal Reserve’s Wednesday forecast indicating three potential rate cuts in the upcoming year, the Dow Jones Industrial average reached a record high, and the 10-year Treasury yield fell below 4.3%. Traders interpreted this forecast as a signal of a shift in the central bank’s stance, anticipating earlier-than-expected rate cuts. However, Williams cautioned against premature expectations and expressed reservations about the market’s enthusiasm for predicting deeper rate cuts and a potential start as early as March.
- Data-Dependent Approach and Caution on Premature Assumptions: Williams reiterated the Federal Reserve’s commitment to a data-dependent approach. He emphasized the readiness to tighten policy again if the trend of easing inflation were to reverse. Williams acknowledged the volatility of economic data and cautioned against premature assumptions, stating that it is too early to consider future rate cuts, highlighting the importance of adaptability in response to changing economic conditions. Additionally, he provided insights into the Fed’s projection for the core personal consumption expenditures price index, indicating a planned decline to 2.4% in 2024, further dropping to 2.2% by 2025, and reaching the 2% target in 2026. Despite a year-over-year rise of 3.5% in October, Williams expressed confidence in the effectiveness of monetary policy, attributing the observed slowing in inflation to intentional measures.
New York Federal Reserve President John Williams dismissed the possibility of rate cuts being a current focus for the central bank, stating that discussions are centered around achieving a sufficiently restrictive monetary policy to bring inflation back to the target of 2%. Williams emphasized the importance of addressing the immediate question before the Federal Reserve, echoing Chair Powell’s sentiments.
Despite the Dow Jones Industrial average reaching a record high and the 10-year Treasury yield dropping below 4.3%, fueled by market speculation following the Fed’s forecast of three rate cuts in the coming year, Williams cautioned against premature assumptions. Traders had interpreted the forecast as a shift in the central bank’s stance, anticipating earlier-than-expected rate cuts. However, Williams downplayed these expectations, describing them as premature.
Addressing the enthusiasm in futures markets that anticipated deeper rate cuts and a potential start as early as March, Williams urged caution. He emphasized the Fed’s commitment to data dependency and highlighted the readiness to tighten policy again if the trend of easing inflation were to reverse. Williams acknowledged the volatility of economic data, noting the potential for surprising movements that necessitate a flexible policy approach.
The Federal Reserve’s projection for its preferred inflation metric, the core personal consumption expenditures price index, indicated an anticipated decline to 2.4% in 2024, further dropping to 2.2% by 2025, and ultimately reaching the 2% target in 2026. Despite a year-over-year rise of 3.5% in the index in October, Williams expressed confidence in the effectiveness of monetary policy, attributing the observed slowing in inflation to intentional measures.
In conclusion, Williams underscored the need to ensure sustained progress toward the 2% inflation target, reinforcing the Federal Reserve’s commitment to adaptability in response to evolving economic conditions. The central bank remains vigilant and prepared to adjust policies if inflation were to stall or reverse, acknowledging the inherent uncertainties in economic data and signaling a cautious and data-driven approach to monetary policy.
For the full original article on CNBC, please click here: https://www.cnbc.com/2023/12/15/feds-john-williams-says-the-central-bank-isnt-really-talking-about-rate-cuts-right-now.html
