Fed policymakers shed light on inflation and interest rate outlook

Federal Reserve officials speak about monetary policy and the economic outlook on different scheduled events. Here are the main comments that could anticipate their November decision. Ahead of their words, market participants were pricing in increased odds for a 50 basis points (bps) interest rate cut in November.

Federal Reserve (Fed) Governor Lisa Cook said late Thursday, she "wholeheartedly supported a 50 bps rate cut."

Further comments

On path of policy, will look carefully at data, outlook, balance of risks.

Normalization of economy, particularly of inflation, 'quite welcome.'

Labor market 'solid' but has cooled noticeably; may become more difficult for some to find employment.

Sees significant easing in inflationary pressure.

Upside risks to inflation have diminished; downside risks to employment have increased.

In the short-run AI could be inflationary, because of high demand.

Over the long run AI could be disinflationary.

However, Federal Reserve (Fed) Governor Michelle Bowman, a member of the Fed's Board of Governors since 2018, made no new comments on monetary policy, repeating those made a couple of days ago.

As the post-meeting statement noted, I dissented from the FOMC's decision, preferring instead to lower the target range for the federal funds rate by 1/4 percentage point to 5 to 5‑1/4 percent.

Key quotes

Prices remain much higher than before the pandemic, which continues to weigh on consumer sentiment.

Economic growth moderated earlier this year after coming in stronger last year.

Although personal consumption has remained resilient, consumers appear to be pulling back on discretionary items and expenses, as evidenced in part by a decline in restaurant spending since late last year.

While unemployment is notably higher than a year ago, it is still at a historically low level and below my and the Congressional Budget Office's estimates of full employment.

The labor market has loosened from the extremely tight conditions of the past few years.

Preference for a more measured re-calibration of policy

I continue to see greater risks to price stability, especially while the labor market continues to be near estimates of full employment.

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This section below has been published ahead of Federal Reserve speakers

• Remarks from Fed Chair Jerome Powell and his colleagues will hog the limelight on Thursday.
• Fed officials lately explained why they supported an outsized rate cut at the September meeting.
• Powell’s speech and Fed commentary could rock the US Dollar against its major rivals.

With the return of US Federal Reserve (Fed) policymakers to the rostrum late last week, the US Dollar (USD) continues to bear the brunt of the dovish Fed outlook on interest rates.

The US central bank opted last week for a 50 basis points (bps) rate cut, bringing the fed funds rate to a range of 4.75%-5.0%. The Summary of Economic Projections, the so-called Dot Plot chart, suggested an additional 150 bps of rate cuts for this year and the next.

Fed policymakers stick to the dovish stance

Since then, several Fed officials have justified their stance for an outsized rate cut move, barring Fed Governor Michele Bowman, who dissented by favoring a 25 bps reduction following the September policy meeting.

Citing progress on disinflation and loosening labor market conditions, Atlanta Fed President Raphael Bostic and his Minneapolis and Chicago counterparts, Neel Kashkari and Austan Goolsbee respectively, explained on Monday their reasons behind voting for a large rate cut instead of a smaller first cut in four years.

In his remarks prepared for a virtual event organized by the European Economics and Financial Centre on Monday, Bostic said that “in my view, the 50-basis-point adjustment at the meeting last week positions us well should the risks to our mandates turn out to be less balanced than I am thinking,” 

Kashkari said that the 50 bps rate cut was the ‘right decision.’ Meanwhile, Goolsbee came out the most dovish, stating that “many more rate cuts are likely needed over the next year, rates need to come down significantly.”

FXStreet’s FedTracker, which gauges the tone of Fed officials’ speeches on a dovish-to-hawkish scale from 0 to 10 using a custom AI model, rated Goolsbee’s words as dovish with a score of 2.0.

Fed Governor Michelle Bowman called for a "more measured approach" to cutting interest rates on Tuesday, citing that "I continue to see greater risks to price stability, especially while the labor market continues to be near estimates of full employment.”

Conversely to Goolsbee’s valuation, FXStreet’s FedTracker rated Bowman’s words as hawkish with a score of 7.0.

Fed Governor Adriana Kugler said late Wednesday that she “strongly supported” the Fed’s decision to cut the interest rates by a half point last week. Kugler added that she “will support additional rate cuts going forward.”

FXStreet’s FedTracker rated Kugler’s comments as dovish with a score of 3.2.

Markets are currently pricing in a 61% probability that the Fed will cut rates by another 50 bps in November, according to the CME Group’s FedWatch Tool. For the next two Fed meetings, changes to the Fed rate are implying an over  80% probability of 75 bps or more in cuts from the current level.

Powell speech to hog the limelight

Amid growing expectations of an outsized rate cut at the next policy meeting, all eyes turn to a bunch of Fed officials who are due to make their scheduled appearances at two different events, starting from 13:10 GMT on Thursday.

Boston Fed President Susan Collins, Fed Governor Adriana Kugler, Fed Vice Chair For Supervision Michael Barr, and Minneapolis Fed President Neel Kashkari are due to participate in a virtual fireside chat at the Boston Fed’s Financial Inclusion and Banking Supervision Workshop. Collins and Kugler are scheduled to speak at 13:10 GMT while Barr and Kashkari are scheduled at 17:00 GMT.

At 13:15 GMT, Fed Governor Michelle Bowman delivers a speech about the US economic outlook and monetary policy at a workshop organized by the Mid-size Bank Coalition of America Board of Directors.

Almost at the same time, Fed Chairman Jerome Powell’s pre-recorded opening remarks at the US Treasury Market Conference, in New York, will be delivered. New York Fed President John Williams and Fed official Barr are also going to speak at the conference.

Meanwhile, Fed Governor Lisa Cook will participate in a moderated discussion about artificial intelligence and workforce development at an event hosted by the Federal Reserve Bank of Cleveland and Columbus State Community College, in Ohio. The event is scheduled for 14:30 GMT.

The main focus will be on Powell’s speech, as traders look out for fresh hints on the size of the next Fed rate cuts. Powell, during his post-September meeting press conference, said that "our decision today reflects growing confidence that strength in the labor market can be maintained,” adding that “we concluded that 50 bps cut was the right thing.”

About Jerome Powell (via Federalreserve.gov)

"Jerome H. Powell first took office as Chair of the Board of Governors of the Federal Reserve System on February 5, 2018, for a four-year term. He was reappointed to the office and sworn in for a second four-year term on May 23, 2022. Mr. Powell also serves as Chairman of the Federal Open Market Committee, the System's principal monetary policymaking body. Mr. Powell has served as a member of the Board of Governors since taking office on May 25, 2012, to fill an unexpired term. He was reappointed to the Board and sworn in on June 16, 2014, for a term ending January 31, 2028."