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The Fed will have to make complex decisions at its next policy meeting in a few weeks.
All Fed officials agree on this. inflation It needs to be defeated in a timely manner, but there is no consensus on whether central banks have already taken sufficient steps.
Some officials believe the Fed needs to raise interest rates further to rein in inflation, while others believe previous rate hikes will continue to further cushion price increases. It takes about a year for the Fed’s actions to be transmitted throughout the economy.
San Francisco Fed President Mary Daly said last week that “if the labor market continues to cool and inflation continues to trend back toward target, we can keep interest rates on hold and maintain policy effectiveness.” Meanwhile, Fed Director Michelle Bowman recently said, “We continue to expect further rate hikes will likely be necessary to bring inflation back to 2% in a timely manner.”
Simply put, Fed officials I know This is because the future of the economy is fraught with many uncertainties.
However, it is unclear whether inflation will slow down further. Employers continue to have strong hiring Or bond market decline It would suppress the economy enough to bring down inflation. It’s also unclear how much the restart of student loan payments this month will ultimately impact spending, given the Biden administration. recently approved some debt relief.
So while Fed officials are divided, it doesn’t really matter. Disagreements within the Fed are just a feature of central banks at critical moments like the current one.
“In general, it should be seen as a good thing that they have different opinions. It is probably a design feature of the committee, allowing a variety of views to be aired and otherwise creating groupthink. There are risks,” Michael Feroli, JPMorgan’s chief U.S. economist, said in a statement to CNN.
Fed officials are human too, and as the saying goes, opinions are like belly buttons in that everyone has an opinion.
The Federal Reserve’s monetary policy-setting committee, the Federal Open Market Committee, has made policy decisions unanimously at nearly every meeting throughout the rate-hike cycle, which began in March 2022.
“It’s not too surprising that the decision was unanimous. The Fed started so far behind that it was a natural decision to play catch up. Now that we’re nearing the end, The difference is clear,” Feroli said.
Fed officials with voting rights on the committee have the option to object, but that has only happened twice this cycle. The last dissent came more than a year ago from former Kansas City Fed President Esther George.
That division could be important if multiple officials oppose it. However, the possibility of that happening is still very low at this point.
“Dissent means someone vehemently disagrees with the decision the group is making. It takes a very high degree of conviction to do so,” says Columbia Threadneedle. Ed Al Hussaini, senior rates and currency analyst at Investments, told CNN.
“Both sides have very valid points, and one side is trying to convince people on the other side,” he said.
Al Hussaini added that even if one official objects, it “doesn’t mean much.” “Historically, multiple dissenting opinions have been a sign of a deeply divided committee,” JPMorgan’s Feroli said.
“I would be surprised if there were multiple objections in the near future, which I think is probably still the case,” Feroli added.
It is also worth noting that the voting members of the FOMC change at the beginning of each year.
The FOMC has a total of 12 voting members. Seven of those votes always come from members of the Fed’s Board of Governors, which includes Fed Chairman Jerome Powell. The New York Fed president, currently John Williams, always votes at meetings. The remaining votes will come from four of the other 11 regional Fed banks.
This year’s voters are Dallas Fed President Rory Logan, Chicago Fed President Austan Goolsby, Philadelphia Fed President Patrick Harker, and Minneapolis Fed President Neel Kashkari, and will be rotated next year.
Mr. Rogan and Mr. Kashkari are considered “hawks,” meaning those who support a more aggressive stance in the fight against inflation, while the other two are considered “doves,” meaning that further Fed tightening would lead to unnecessary economic damage. They are considered to be concerned about causing damage.
Next year’s voters will be the Fed presidents of Cleveland, Richmond, Atlanta, and San Francisco. Rafael Bostic of the Atlanta Fed and Daley of the San Francisco Fed will be the most dovish Fed presidents on the ballot in 2024.
– CNN’s Elisabeth Buchwald contributed to this report.
The Fed may be in a bind over interest rates, but there appears to be a good argument to keep rates stable.
U.S. hiring accelerated last month, with employers adding a massive 336,000 jobs. This is at odds with Fed officials’ goal of cooling the job market in order to bring inflation to the central bank’s 2% target, and would be the last rate hike in the Fed’s two-day policy meeting just weeks away. should mean that it will be done.
But the recent decline in the national debt means the U.S. financial system will become more of a strain on American households and businesses, which itself could dampen the economy.
The 30-year Treasury yield rose above 5% this week for the first time since 2007 on expectations that the Fed will keep interest rates steady for the long term. Yields rose further after Friday’s blockbuster jobs report.
Because U.S. Treasuries are the benchmark used to price bonds, higher yields mean higher interest rates on everything from car loans to merger and acquisition costs. Raising interest rates further could put Americans in even more dire financial straits.
The Fed then has to make a difficult decision. A crash in the bond market could cool the economy enough for the Fed to keep interest rates on hold. Or the Fed could see the resilience of the job market as a threat to defeating inflation and need to raise rates again.
But there’s also that This is a strong argument for a moratorium, and a majority of investors agree with it.
By Friday afternoon, markets believed there was a roughly 89% chance that the Fed would decide to keep interest rates on hold again at its Oct. 31-Nov. 1 meeting, according to the CME FedWatch tool.
Let’s pause here again. Rising government bond yields and tightening bank lending standards will continue to constrain the economy and further deprive inflation of momentum, but the resilience of some underlying inflationary pressures, particularly in the services sector, means interest rates will remain high for an extended period of time. There is likely to be. sector.
Read the full September employment report here.
Monday: Fed officials Laurie Logan, Michael Barr, and Philip Jefferson give speeches.
Tuesday: PepsiCo’s earnings. The National Federation of Independent Business releases its September Small Business Optimism Index. Fed officials Rafael Bostic, Christopher Waller, Neel Kashkari and Mary Daly spoke.
Wednesday:The U.S. Department of Labor releases the September Producer Price Index. Fed officials Christopher Waller and Rafael Bostic gave speeches. The Fed releases the minutes of its September policy meeting.
Thursday: Domino’s Pizza, Walgreens, and Delta earnings. The US Department of Labor releases the Consumer Price Index for September. China’s National Bureau of Statistics will release September data on inflation, and the country’s customs authorities will release September data on trade flows.
Friday: U.S. Department of Labor reports import and export prices for September. The University of Michigan will release preliminary findings on consumer sentiment in his October.
