Fed Officials Express Caution on Rate Cuts
Hammack: "No Basis for a Cut If Meeting Were Tomorrow"
Schmid: "Clear Data Needed for September Cut"
Market Awaits Powell's Jackson Hole Speech for Hawkish Signals
Odds of September Rate Cut Drop from
On August 21 (local time), just one day before Federal Reserve Chair Jerome Powell's speech at the Jackson Hole Symposium, Fed officials delivered a series of hawkish (favoring monetary tightening) remarks. Despite the recent slowdown in employment and President Donald Trump's pressure to cut interest rates, they maintained that a premature easing would be difficult due to growing concerns about tariff-driven inflation.
As caution grows that Chair Powell may maintain a prudent monetary policy stance in his Jackson Hole speech, expectations for a rate cut in September have further diminished.
In an interview with Yahoo Finance, Cleveland Fed President Loretta Mester stated, "If there were a meeting tomorrow, I don't see any justification for lowering rates." She emphasized, "Inflation has been too high and rising over the past year," and added, "It is important to keep policy moderately restrictive to bring inflation back to target levels."
Kansas City Fed President Jeffrey Schmid also expressed a cautious attitude toward rate cuts. In an interview with CNBC, Schmid said, "We are in a really good position," and noted, "We would need very clear data to adjust the policy rate right now." He added, "There will be a lot to discuss between now and September," suggesting that the Fed could decide on rates after reviewing the inflation and employment data for August.
Regarding inflation, he particularly noted, "The last stretch is quite challenging." He explained, "There are real and significant costs associated with tackling the final 1% of inflation remaining in the system," and warned, "Prices could rise. Inflation is currently closer to 3% than 2%, and there is still work to be done." He assessed the recent labor market as "solid."
Atlanta Fed President Raphael Bostic also projected in a public speech that there would be only one rate cut this year.
These statements from Fed officials have dampened the market's expectations, which had largely taken a September rate cut for granted. Although calls for a rate cut have emerged amid signs of a cooling labor market, concerns about tariff-driven inflation remain prevalent within the Fed.
The minutes from the July Federal Open Market Committee (FOMC) meeting, released the previous day, echoed this sentiment. The minutes stated, "Participants emphasized both the risks of rising inflation and the risks of declining employment, but most viewed rising inflation as the greater risk." However, some members considered "the downside risk to employment as the most significant threat," revealing internal differences of opinion.
Manufacturing data released on the same day further reduced the perceived need for a rate cut. According to S&P Global, the U.S. Manufacturing Purchasing Managers' Index (PMI) for August rose to 53.3, up 3.5 points from July's 49.8, marking the largest increase since May 2022. This figure also far exceeded the market expectation of 49.7. While the expansion in manufacturing activity is positive, there are concerns that recovering demand could fuel inflation.
In fact, according to CME FedWatch, the probability that the Fed will lower its benchmark rate-currently at 4.25~4.5%-by 0.25 percentage points in September fell from 82.4% the previous day to 73.6% on this day.
Louise Navellier, founder of Navellier & Associates, commented, "Chair Powell's speech will make the market even more cautious," adding, "The FOMC minutes released the previous day revealed heightened concerns about tariff-driven inflation, and expectations for a rate cut continue to weaken."
The market is closely watching Chair Powell's Jackson Hole speech, scheduled for 10 a.m. the following day (Eastern Time). As Powell has foreshadowed the direction of U.S. monetary policy from Jackson Hole, home to the Teton Mountains, over the past two years, the speech is sometimes referred to as the 'Teton Revelation.' In 2023, Powell signaled a prolonged period of high interest rates by stating he would continue rate hikes to curb inflation despite the pain for households and businesses. In 2024, he indicated that the time for policy adjustment (rate cuts) had arrived, hinting at a 'pivot' one month later.
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