Fears of a US recession in the near term have , but rate cuts are still on the agenda. The combination of a robust economy and expectations for monetary easing strike some observers as misguided, but Federal Reserve Governor Christopher Waller on Monday explained that the central bank is still anticipating that more easing is likely.
The concession to the firmer economic data of late: the cuts will be softer, he noted. But if hawks looking for a sign that cuts were off the table, they were disappointed in Waller’s speech at Stanford University yesterday.
“The data is signaling that the economy may not be slowing as much as desired,” he said. “While we do not want to overreact to this data or look through it, I view the totality of the data as saying monetary policy should proceed with more caution on the pace of rate cuts than was needed at the September meeting.”
In sum, “Whatever happens in the near term, my baseline still calls for reducing the policy rate gradually over the next year.”
Markets agree. Fed funds futures this morning are pricing in high odds that the will trim the current 4.75%-to-5.0% target range by 25 basis points at the next FOMC meeting on Nov. 7.
Meanwhile, the policy-sensitive continues to trade well below the current Fed funds target range.
As of Oct. 11, there was a yawning gap between the median effective Fed funds rate and the much lower 2-year yield – a strong sign that the market sees a series of rate cuts in the near…
