The hawkish faction of the Federal Reserve suddenly spoke out.
On November 25th Eastern Time, Neil Kashkari, the representative of the hawkish faction of the Federal Reserve and the chairman of the Minneapolis Fed, stated that cutting interest rates at the December meeting was a reasonable consideration. At the same time, the dovish representative of the Federal Reserve, Chicago Fed President Goolsby, also stated in his latest speech that he expects the Fed to continue cutting interest rates.
At a critical moment, the minutes of the Federal Reserve's November meeting and the Fed's most favored inflation indicator, the PCE Price Index, will be released on Tuesday and Wednesday local time, providing the latest clues to the market on the prospect of the Fed cutting interest rates.
Currently, Wall Street generally expects that the upcoming latest inflation data may indicate that price pressures in the United States remain stubborn. According to CME's "Federal Reserve Watch", the probability of the Fed keeping current interest rates unchanged until December is 44.1%, and the probability of a cumulative 25 basis point rate cut is 55.9%.
The latest statement from the Federal Reserve
On November 25th Eastern Time, several Federal Reserve officials delivered their latest speeches, releasing a series of policy signals.
Among them, Chicago Fed Chairman and "dovish" Gulsby stated that he expects the Fed to continue cutting interest rates and move towards a neutral rate stance, in order to achieve the goal of neither restricting nor promoting economic activity.
Gulsby said, "Unless there is some convincing evidence that the economy is overheating, I cannot see a reason why the US federal funds rate should not continue to decline.
Gulsby added, "As for the speed of interest rate cuts, it will depend on the outlook and environment. I believe the overall situation in recent months is that inflation rates have often been lower than expected, but far above the Fed's 2% target
He stated that his forecast for the neutral rate is close to the official median estimate - the Fed's official neutral rate estimate for September this year was 2.9%. Neutral interest rate refers to the real interest rate that supports the economy to achieve full employment and maximum output while keeping inflation unchanged.
At the same time, Neil Kashkari, the representative of the hawkish faction in the Federal Open Market Committee (FOMC) and the chairman of the Minneapolis Fed, also issued a dovish signal in an interview on the same day.
In response to the question of whether the Federal Reserve should cut interest rates by 25 basis points in December, Kashkari said, "It is reasonable to cut interest rates again at the December meeting. As far as I know, we are still considering cutting interest rates by 25 basis points in December, which is a reasonable consideration for us.
But Kashkari said that the resilience of the US economy in the face of rising interest rates suggests that neutral rates may be higher than expected.
In addition, Kashkari also mentioned that the one-time tariffs imposed by US President elect Trump "will not have a long-term impact on inflation"; Only when it triggers a counterattack from global trading partners can it exacerbate long-term inflation.
Geopolitical risks are the primary factor affecting the economic outlook, "he added.
In terms of employment, Kashkari said, "I have some confidence that the unemployment rate is slowly declining and the labor market is still strong
Compared to the recent statements of several Federal Reserve officials, the latest statements from Gulsby and Kashkari are clearly more dovish. Recently, several Federal Reserve officials, including Chairman Powell, have claimed that caution is needed when cutting interest rates in the future, as the US economy continues to rebound and recent inflation data is strong.
The heavyweight minutes are coming
On November 26th Eastern Time (3am Beijing Time on Wednesday), the Federal Reserve will release the minutes of the FOMC meeting from November 6th to 7th. At this meeting, the Federal Reserve decided to lower the benchmark interest rate by 25 basis points.
Analysis suggests that this latest meeting minutes may contain descriptions of inflation data, economic prospects, and future interest rate cuts, which are highly valued by the market.
HSBC economists pointed out in a report that the minutes of the Federal Reserve's November meeting may also reflect discussions among Fed decision-makers about the potential economic impact of the US election results.
After the disclosure of this meeting minutes, the inflation indicator favored by the Federal Reserve, the October Consumer Expenditure Price Index (PCE), will be released on November 27th Eastern Time.
With Trump's victory in the US election, the risk of inflation resurfacing is adding more uncertainty to the Federal Reserve's rate cut cycle. Therefore, as the final heavyweight inflation report before the December interest rate meeting, this data performance may have an impact on the final policy decision.
Currently, Wall Street generally expects that the upcoming latest inflation data may show that US price pressures remain stubborn, which will strengthen the Federal Reserve's cautious attitude towards future interest rate cuts.
According to the median estimate from a survey of economists, the PCE price index in the United States is expected to rise by 2.3% year-on-year in October, higher than the 2.1% in September; Excluding food and energy, the core PCE price index for October is expected to increase by 2.8% year-on-year, which will be the largest year-on-year increase since April.
It is expected that the report will also reveal strong household spending and steady income growth in the United States at the beginning of the fourth quarter. Personal expenses without price adjustment are expected to increase by 0.4% month on month, compared to a 0.5% increase last month. Personal income is expected to increase by 0.3% month on month, unchanged from the previous value.
Currently, as Trump continues to promise to push forward policies such as tax cuts and tariffs after winning the election, Wall Street is widely concerned that inflationary pressures in the United States will increase again in the coming year.
This has also led to a cooling of market expectations for the Federal Reserve's interest rate cuts. According to CME's "Federal Reserve Watch", the probability of the Fed keeping current interest rates unchanged until December is 44.1%, and the probability of a cumulative 25 basis point rate cut is 55.9%. The probability of maintaining the current interest rate unchanged until January next year is 33.7%, the probability of reducing interest rates by 25 basis points cumulatively is 53.1%, and the probability of reducing interest rates by 50 basis points cumulatively is 13.2%.