Last week, the Federal Reserve decided to maintain its current interest rate posture. Fed Chair Jerome Powell told the press that the central bank is likely done raising rates. In addition, he said that officials had explored the topic of rate reductions in their latest meeting. Subsequent comments from New York Fed President John Williams, however, suggest that the central banks may be sending mixed interest rate signals to markets.
Mixed interest rate signals?
Williams told MSNBC’s Squawk Box that the nation’s central bank is not focused on rate cuts. According to him:
“We aren’t really talking about rate cuts right now. We’re very focused on the question in front of us, which as chair Powell said, the question is: have we gotten monetary policy to sufficiently restrictive stance in order to ensure the inflation comes back down to 2%? That’s the question in front of us.”
When pressed on whether the FOMC members had talked about rate cuts, Williams suggested that any discussion of potential cuts was within the context of members presenting their own opinions and projections for the next three years.
Responding to the markets’ reaction to Powell’s comments
The interviewer also asked Williams about the markets’ reaction to Chairman Powell’s remarks about potential cuts. In the wake of last week’s Fed decision, the Dow spiked to all-time highs to finish the week. Much of that trading optimism appears to have been a direct response to the Fed’s decision to “pencil in” three potential rate cuts next year. Williams said,
“One thing that’s been really interesting over the past year—you know, we track this obviously very closely here at the New York Fed—is the market reactions to all kinds of news, economic data, and all types of events has been much bigger in magnitude, much larger than is historically normal. I think that reflects, in large part, the uncertainty, the unusual nature of the situation we face. So, the fact that we’re seeing big market reactions to pretty much everything has been a pattern that we’ve seen over the year.”
Williams again pointed to three-year projections from the FOMC to close out his comments on potential rate cuts. Other recent appearances from Fed officials have also seemed to suggest mixed interest rate signals. For example, Atlanta’s Fed President suggested late last week that a rate cut might not happen until next fall.
