The closer the December meeting of the central bank's Federal Open Market Committee, the more investors want to know whether there will be another rate cut. And Fed officials aren’t saying for good reason — they don’t know. But on Tuesday, three of them tried to explain.
Conditions seem good. “We have a solid labor market, good growth, and inflation is coming down, which is a huge relief to American families,” San Francisco Fed President Mary Daly told Fox News on Tuesday.
If things are that good, shouldn’t a rate cut be off December’s table because it doesn’t seem necessary?
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“Absolutely not, because in order to keep the economy in a good place, we have to continue to recalibrate policy,” Daly answered. “Now, whether it will be in December or sometime later, that’s a question we’ll have a chance to debate and discuss at our next meeting. But the point is, we have to keep policy moving down to accommodate the economy, because we want a durable expansion with low inflation.”
“You’ve got to take the long arc as a central bank, not just what happened at the last inflation reading,” Chicago Fed President Austan Goolsbee said on a Crain’s “Power Lunch.” “What does that mean monetary policy should be at the next FOMC meeting? It’s important to take — to find the through line,” which is difficult both because of data variability but conditions that don’t have a good historical parallel.
“But if your inflation gets close to target and your unemployment gets close to where you want it and the GDP growth of the economy is coming back to something like [a] trend, but the interest rate remains well above where you think where it needs to settle, you’ve got to be careful,” Goolsbee says. He likened the economy now to filling a bathtub where the water is a little too hot so you start to drop in some ice cubes, but it would be too easy to drop in a few too many.
“And so that’s why I said over the next year it feels to me like rates come down a fair amount from where they are now,” Goolsbee added. “But we meet every six weeks because the conditions change.”
Fed Governor Adriana Kugler speaking at the Detroit Economic Club, said, “Of course, the incoming Administration and Congress have not enacted any policies yet, so it is too early to make judgements. Studying the specifics, when they come out, will be important, as trade policy may affect productivity and prices.”
So, to paraphrase a famous Donald Rumsfeld quote, there are things the Fed knows, things the Fed recognizes that it doesn’t know, and then things that can’t be anticipated until they surprise the central bank.
"I will make assessments about what the net effects of any policy changes will be on prices or employment and how the balance between the two legs of our mandate will be affected," Kugler said in her remarks.
It’s understandable.
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