Fed’s Goolsbee ‘confused’ with market reaction on rates

The Federal Reserve is not committing in advance to cut interest rates soon and quickly, and rising market expectations that it will do so contradicts the way the economy works. us central banksaid the president of the entity in Chicago, Austan Goolsbee.

“It’s not what you say or what the president (of the Fed, Jerome Powell) says, it’s what they hear and what they want to hear,” Goolsbee said Monday in an interview with CNBC in reference to the response of the financial markets to the comments last week by the head of the institution, when he assured that he was beginning to be “in sight” the calendar of the rate cuts.

“I was a little confused…was the market just signaling ‘this is what we want you to say’? It seemed to me that there was some confusion about how the FOMC works. “We do not debate specific policies speculating about the future,” he stated, referring to the deliberation method of the Federal Open Market Committee of the Fed, for its acronym in English.

Bets that the Fed will lower its benchmark overnight rate by a quarter of a percentage point at its March meeting soared last week after the U.S. central bank left its official rate unchanged in the range of 5.2 %-5.5% and that the authorities predicted cuts of three quarters of a point next year.

Earlier on Monday, Cleveland Fed President Loretta Mester, who has a vote on policy in 2024 until she retires in June, also bucked financial market expectations about how abruptly the central bank US will pivot towards rate cuts.

However, this has not prevented the markets from betting on more reductions than those anticipated by the Fed by 2024, and fed funds futures traders have maintained their increased bets on a cut in March. According to CME Group’s FedWatch tool, the probability of a decline at that meeting remains 75%.

“The next phase is not when to cut rates, although that is where the markets are. It is about how long we need monetary policy to remain restrictive to be sure that the inflation “It is on that sustainable and timely path back to 2%.”Mester said in an interview with the Financial Times.

“The markets have gotten a little ahead of themselves. They jumped to the final part, which is ‘let’s normalize quickly’, and I don’t see that”he added.

On Friday, two other Fed officials, John Williams and Raphael Bostic, presidents of the institution in New York and Atlanta, respectively, and who will vote on the FOMC next year, also tried to temper market expectations that the Cuts will inevitably begin in March.