(Bloomberg) — Two Federal Reserve officials on Friday dismissed growing expectations in financial markets that the central bank would cut interest rates as early as March.
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New York Fed President John Williams said on CNBC that it is too early for officials to consider lowering borrowing costs as they consider whether policy is tight enough to bring inflation back to 2%. to lower.
Separately, Atlanta Fed President Raphael Bostic, who votes on monetary policy next year, told Reuters he expected two rate cuts in 2024, but they would not begin until the third quarter.
“We’re not really talking about rate cuts,” Williams said on CNBC. He noted that it was “premature” to consider a rate cut in March and said financial markets had reacted “stronger” than policymakers showed in their interest rate forecasts this week.
Williams' message appeared to be a deliberate attempt to give the Federal Reserve's Federal Open Market Committee leeway to keep interest rates steady early next year if they don't see further desired progress on inflation, said Derek Tang, an economist at LH Meyer/Monetary Policy Analytics.
“The committee wants to have the option of not making cuts in March,” Tang said.
According to the Wall Street Journal, Chicago Fed President Austan Goolsbee did not rule out the possibility of a rate cut in March. In an interview with the news outlet on Friday, Goolsbee said the risks were becoming more balanced, suggesting the focus may need to shift to concerns about the employment side of the mandate.
The Fed earlier this week signaled a shift toward reversing the steepest rate hikes in a generation, with officials forecasting a series of rate cuts next year. Williams noted that Fed officials' quarterly interest rate forecasts point to a more gradual easing path than markets expect.
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According to the median forecast, policymakers are planning three rate cuts in 2023, while futures traders are pricing in as many as six rate cuts starting in March.
“It's just premature to even think about this question,” Williams, who plays a key role in communicating central bank policy, said of a rate cut in March. “That is not the question we are facing.”
While Chairman Jerome Powell said on Wednesday the central bank was prepared to resume interest rate hikes if price pressures returned, he also said the issue of easing had come up at its meeting this week.
Powell's lack of resistance during his press conference to investors' growing expectations of rate cuts in 2024 sparked one of the biggest post-meeting rallies in recent memory. It was the best Fed day for all assets in nearly 15 years, according to data compiled by Bloomberg.
“I don’t really feel like that’s imminent,” Bostic was quoted as saying by Reuters. According to Reuters, policymakers would still need “several months” to see enough data and gain confidence that inflation will fall further, Bostic said.
Williams said Friday that “in some ways the market is reacting very strongly, perhaps more strongly than we show in our forecasts.”
“As Chairman Powell said, the question is: Have we put monetary policy on a tight enough path to ensure that inflation gets back to 2%? That is the question before us,” he said.
Read more: Wall Street traders are going all in on the big policy shift in 2024
Two-year Treasury yields initially rose as Williams spoke, but then fell as traders continue to see high chances of a rate cut in March. The shares were little changed in morning trading.
As president of the New York Fed, Williams has a permanent seat on the Federal Open Market Committee, the Fed body that sets interest rates.
(Adds comments from Chicago Fed President Austan Goolsbee.)
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