At a look, the Federal Reserve has set a high bar for any change in rates of interest this year: A “materials reassessment” of the economic outlook would be required as set forth by U.S. central bank chief Jerome Powell.
Since introducing that idea in October as he called a halt to last year’s mini-fee lower cycle, Powell himself has uttered the term at the least half a dozen times, and the phrase has peppered remarks from other policymakers as effectively.
However, a closer listen reveals vital distinctions among the Fed’s 17 policymakers as to what “material reassessment” means.
And which will complicate efforts to understand what would possibly prompt the following rate move as financial data spool out through the U.S. presidential election marketing campaign this year.
Obvious shocks will matter, and the sharp shift in markets following a coronavirus outbreak in China shows how unexpected fast events can begin to reshape the outlook. Major stock indexes had been down sharply on Monday, oil prices and the U.S. dollar surged, and financial analysts noticed a potential hit to the Chinese and possibly global economic growth as the death toll from the virus sored and a major Chinese metropolis was hospitalized.
Carefully watched bond spreads contracted, and traders began pushing forward their estimates of a Fed rate move, with roughly even odds the central bank will lower rates again by the end of June.
Mester is concerned last year’s three rate cuts may encourage extreme risk-taking by households, corporations, and buyers benefiting from cheap credit. However, a “deterioration” of public attitudes about inflation would possibly change her mind.
Fed delegates will continue their debate after they meet Tuesday for the first policy meeting of the year.