Officials Collective Cool December Rate Cut Expectations

At an event at the University of Evansville in Indiana, Waller stated that after two rate cuts this year, the "policy rate is now closer to neutral than mildly restrictive." In his view, US inflation remains around 3%, above the 2% target, and there is "still a need to combat elevated inflation while providing some support to the labor market." He expects the US economy to show some weakness in the fourth quarter but anticipates a return to trend growth or slightly above in the first quarter of next year.

Waller admitted that his earlier support for rate cuts was primarily driven by concerns about employment. Given that inflation persistence remains and economic performance is relatively resilient, he believes the Fed now "needs to be more cautious" to prevent policy from becoming overly accommodative.

Other regional Fed presidents delivered similar signals on the same day. Cleveland Fed President Beth Hammack stated that interest rate policy should remain in a "restrictive range" to continue exerting downward pressure on inflation, which is still above target. Minneapolis Fed President Neel Kashkari said that inflation around 3% is "still too high," and some labor market indicators are already showing signs of stress, suggesting it is not appropriate to ease policy too quickly.

San Francisco Fed President Mary Daly also mentioned that after two rate cuts this year, the risks between the Fed's dual mandates of "maximum employment" and "price stability" have largely rebalanced. However, service sector inflation has not yet shown a sustained decline, so market expectations for further easing need to be more restrained.

In his commentary, Bob Doll, CEO and Chief Investment Officer of Crossmark, noted that while the market has high hopes for rate cuts, the latest statements from Fed officials suggest they are "more of a potential option rather than a committed path." He advised investors to mentally prepare for interest rates to remain higher for longer.