Inflation Worries Keep Fed Officials Cautious Ahead of December Meeting

Despite markets anticipating a rate cut at the upcoming Federal Reserve meeting in December, some officials say they still don’t know whether enough progress is being made on inflation.

The Federal Open Markets Committee (FOMC) has cut its influential federal funds rate at the past two meetings. However, the December meeting may be a closer call as Fed officials called for a cautious approach and inflation ticked back up in its most recent readings.

“After making a lot of progress over the past year and a half, the recent data indicate that progress may be stalling,” Waller said. “I take the recent inflation data seriously, but we saw a similar uptick in inflation a year ago that was followed by a continued decline, so I also don’t want to overreact.”

In September, officials projected that the Federal Reserve would cut interest rates once more before the end of the year, and traders believe central bankers will stay the course. According to the CME Group’s FedWatch tool, which forecasts rate movements based on fed funds futures trading data, investors are pricing in a 75% chance of a quarter-point cut at the next meeting.

So What Are Fed Officials Thinking Ahead of the Meeting?

At least one Fed official seems to agree with traders.

“Based on the economic data in hand today and forecasts that show that inflation will continue on its downward path to 2% over the medium term, at present, I lean toward supporting a cut to the policy rate at our December meeting,” said Federal Reserve Gov. Christopher Waller at an economic conference in Washington, D.C. on Monday.

But not every central banker is so sure. San Francisco Fed President Mary Daly told Fox Business that while rates are still too high, it’s not clear whether there’s been enough progress on inflation to move rates lower at the next meeting.

“In order to keep the economy in a good place, we have to continue to recalibrate policy now, whether it’ll be in December or sometime later, that’s a question we’ll have a chance to debate and discuss at our next meeting,” Daly said. “There’s more data to collect before we can really shape the forecast for next year, and that’s what a data-dependent Fed looks like.”

What Kind of Data Are They Looking For?

Fed officials said that Friday’s scheduled release of the November jobs report and next week’s planned Consumer Price Index data could be consequential for the debate at the Dec. 17-18 FOMC meeting. 

“The path for policy will depend on the data. If we’ve learned anything over the past five years, it’s that the outlook remains highly uncertain,” said New York Fed President John Williams at a Queens Chamber of Commerce event Monday.