Fed officials keep options open for December rate decision

(Bloomberg) — Three Federal Reserve officials made clear on Monday that they expect the central bank to continue cutting interest rates next year, but stopped short of saying they were committing to another rate cut later this month.

Speaking at a conference in Washington, Fed Governor Christopher Waller said he was inclined to vote for lower borrowing costs when Fed officials gather on Dec. 17-18, but added that not until then The data released may provide a reason to keep interest rates steady.

“I am currently leaning toward supporting a rate cut at the December meeting,” Waller said in prepared remarks at the Fed Framework Review in Washington, hosted by the American Institute for Economic Research. “But that decision will depend on whether the data we receive before then surprises higher and changes my forecast for the path of inflation.”

Waller said recent data had raised concerns that inflation could stall above the 2% target, but added there was “no sign” that prices in key service categories should remain at current levels or rise.

“I believe there is strong evidence that policy continues to be tightly constrained and another rate cut will only mean we are not pressing the brake pedal as hard,” Waller said in his speech. “Another factor supporting further rate cuts is that the labor market appears to be Eventually a balance is reached and we should aim to keep it that way.”

New York Fed President John Williams and Atlanta Fed President Raphael Bostic had slightly different remarks. Both said the economy still looks strong and inflation is likely to continue to fall closer to the Fed’s target – which warrants further rate cuts. But they did not say whether they supported a rate cut in December.

“The policy path will depend on the data,” Williams said in a speech in New York. “If we’ve learned anything over the past five years, it’s that the outlook remains highly uncertain.”

Bostic published his latest opinion in an article on Monday. In a separate call with reporters, he said he would wait for more data before deciding on the next meeting.

“I’m keeping my options open,” he said.

Since September, policymakers have lowered interest rates by three-quarters of a percentage point, a half-percentage point larger than usual. Some officials have expressed support for a more gradual pace of rate cuts over the coming months.

Waller also briefly commented on the Fed’s next framework review, which will begin in January. He called the current flexible average inflation targeting strategy – which allows inflation to run slightly above the Fed’s 2% target to compensate for periods of too low price pressures – to be backward-looking.

“We designed the framework with the view that low inflation is here to stay,” Waller said. “Then within a year the whole thing exploded” as inflation picked up.

“The monetary policy strategy should remain prudent regardless of economic conditions,” he said. He also criticized the flexible average inflation target as not being intuitive or clear to the public.

Fed officials began cutting interest rates in September after pushing rates to a peak of 5.25% to 5.5%, which helped cool inflationary pressures from a peak of 7.2% in mid-2022.

But investors in the December futures contract are anticipating a possible pause in the production-cutting cycle, after recent data showed sticky inflation in the services sector. The personal consumption expenditures price index, which excludes food and energy, rose 2.8% in the 12 months to October.

Although officials described their policies as “restrictive,” U.S. gross domestic product grew at an annualized rate of 2.8% in the latest quarter. Personal spending and business equipment spending remained strong.

Chairman Jerome Powell has been concerned about the risk of labor market weakness, but interpreting the data clearly has been challenging due to strikes and storms. The U.S. Bureau of Labor Statistics will release its November employment report on Friday. The next Federal Open Market Committee meeting will be held in Washington on December 17-18.

(Updated with comments from Waller and Bostic on paragraph six.)

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