US Markets
Monday, December 18th, 2023 3:17 pm EDT
Key Points
- Market Misinterpretation of Fed’s Message: Chicago Fed President Austan Goolsbee expressed concern that the financial market may have misunderstood the Federal Reserve’s intended message last week. Despite the Fed’s decision to maintain steady rates, the updated projections indicating an expectation of three rate cuts in 2024 led to a sharp rally in stocks and bonds, with the Dow Jones Industrial Average reaching a record high.
- Fed Not Actively Planning Series of Rate Cuts: Goolsbee pushed back against the notion that the Federal Reserve is actively planning a series of rate cuts. He emphasized that the Fed does not engage in speculative discussions about future policies but makes decisions at the respective meetings.
- Market Expectations Differ from Fed’s Projections: Trading in the options market suggests that traders anticipate a Fed benchmark rate between 3.75% to 4.00% at the end of 2024. This projection, derived from the CME FedWatch Tool, implies a more significant rate cut than forecasted in the central bank’s summary of economic projections. Goolsbee highlighted the disparity between market expectations and the Fed’s projections, indicating that the market anticipates a greater number of rate cuts than reflected in the Fed’s projections. New York Fed President John Williams also downplayed discussions about rate cuts in the aftermath of the market rally.
Chicago Fed President Austan Goolsbee expressed concern that the market may have misconstrued the Federal Reserve’s recent message. Last week, the Fed opted to maintain rates and revealed projections of three rate hikes in 2024. Contrary to expectations, this led to a surge in stocks and bonds, prompting Goolsbee to question whether the market was interpreting the Fed’s words according to its desires. Goolsbee emphasized that the Fed does not engage in speculative debates about future policies and urged caution against assuming a series of rate cuts is actively planned. Market expectations, as indicated by options trading, suggest a more significant rate cut by the end of 2024 than forecasted in the Fed’s economic projections. Goolsbee, along with other Fed officials, downplayed the market rally’s significance, emphasizing that the current focus is not on rate cuts. New York Fed President John Williams also clarified that rate cuts are not a current topic of discussion.
For the full original article on CNBC, please click here: https://www.cnbc.com/2023/12/18/feds-goolsbee-says-he-was-confused-by-last-weeks-market-reaction-.html
