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After 11 interest rate hikes, Federal Reserve officials appear divided on next steps.
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Jerome Powell and other central bankers have signaled another rate hike could be on the table.
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Markets predict 97% odds of no rate hike November 1, and 29% odds of a quarter-point hike in December.
In an effort to combat the highest inflation in four decades, Federal Reserve officials, led by Jerome Powell, have implemented 11 interest rate hikes since March 2022. These actions have marked the end of the easy-money era, placing pressure on the stock market and raising concerns about an impending recession.
Since the September meeting of the Federal Open Market Committee, several central bankers have indicated that interest rates may still rise.
However, some officials have countered these claims, suggesting that the federal funds rate has likely reached its peak for this cycle. Recent volatility in the bond market, highlighted by a 10-year Treasury yield of 5%, may have already achieved some of the Fed’s objectives, reducing the need for further monetary policy tightening, as noted by Jerome Powell.
Inflation currently stands at 3.7% year-over-year in September, nearly double the Fed’s 2% target. According to Bloomberg’s latest poll, forecasters give a 55% chance of a recession occurring within the next 12 months.
Presently, the market indicates a 97% probability of no rate adjustment at the November 1 meeting of the Federal Open Market Committee, according to CME’s FedWatch Tool. This would maintain the fed funds rate within the 525-550 basis point range.
Traders assign a 29% likelihood of a 25-basis-point hike in December.
Here are eight quotes from policymakers hinting at potential future actions:
Monetary policy outlook
1. Philadelphia Fed President, Patrick Harker, October 16: “In the absence of a significant change in the data or input from our contacts, I believe we are at a point where we can maintain current interest rates.”
2. Federal Reserve chairman, Jerome Powell, October 19: “If we continue to see persistently above-trend growth or signs that labor market tightness is no longer decreasing, further tightening of monetary policy may be necessary to protect against inflationary risks.”
3. Atlanta Fed President, Raphael Bostic, October 20: “I want to emphasize the fact that inflation is still at 3.7%, significantly above our target of 2%. We need to see a much closer alignment with our inflation target before considering any relaxation of our current stance.”
Current financial conditions
4. Federal Reserve chairman, Jerome Powell, October 19: “Financial conditions have significantly tightened in recent months, with long-term bond yields playing a major role in this development. We continue to closely monitor these changes as they can have implications for our monetary policy decisions.”
5. Minneapolis Fed President, Neel Kashkari, October 10: “Higher long-term yields may contribute to reducing inflation. However, if these higher yields reflect changes in market expectations regarding our future actions, we might need to follow through in order to maintain their impact on inflation.”
6. Dallas Fed President, Lorie Logan, October 9: “If long-term interest rates remain elevated due to higher term premiums, there may be less need to raise the fed funds rate. However, if the increase in long-term rates is driven by economic strength, the FOMC may need to take additional action.”
Inflation expectations and the labor market
7. Federal Reserve Board of Governors member, Christopher Waller, October 18: “Despite indications that inflation may continue to decline, I want to stress that we have witnessed multiple instances where positive inflation reports were followed by reversals. I will closely monitor upcoming reports to assess whether inflation is on track to reach our target of 2 percent.
8. Boston Fed President, Susan Collins, Reference
