Fed’s Goolsbee says he was ‘confused’ by last week’s market reaction

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.