December rate cut still up for debate — US Fed official

(FILES) The US Federal Reserve Building is seen in Washington, DC, May 3, 2023. – The US Federal Reserve’s preferred inflation measure cooled further last month and now sits just above its long-term target, according to government data published Thursday, shortly before the presidential election. (Photo by SAUL LOEB / AFP)

Washington, United States — A December interest rate cut is still up for debate, a senior US Federal Reserve official said Tuesday, suggesting that another rate reduction is not a foregone conclusion.

“In order to keep the economy in a good place, we have to continue to recalibrate policy,” San Francisco Fed President Mary Daly said during an interview with Fox Business.

“Now, whether it will be in December or sometime later, that’s a question we’ll have a chance to debate and discuss at our next meeting,” added Daly, who will have a vote at the Fed’s rate-setting committee meeting on December 17 and 18.

READ: US Fed’s favored inflation gauge ticks up in October

The US central bank has been on a journey since the Covid-19 pandemic, hiking interest rates to a two-decade high and holding them there in order to tame a surge in inflation, before starting to dial back rates in recent months.

The US economy is now relatively healthy, with robust economic growth, an unemployment rate still relatively close to historic lows, and inflation at 2.3 percent in October, according to the Fed’s favored measure — just above its long-term target of two percent.

Daly’s remarks Tuesday appear slightly more cautious than Fed governor Christopher Waller, her colleague on the bank’s rate-setting committee.

“At present I lean toward supporting a cut to the policy rate at our December meeting,” Waller said on Monday, noting that many people still expected inflation to fall to the Fed’s two percent target over the medium term.

“I believe the evidence is strong that policy continues to be significantly restrictive,” he continued, adding that even an additional rate cut would mean that rates would only be slightly less restrictive than they are now.

Financial markets currently assign a probability of around 70 percent that the Fed will cut rates by a quarter percentage-point at its December meeting, and a roughly 30 percent chance it will pause, according to data from CME Group.

That would leave the Fed’s benchmark lending rate between 4.25 and 4.50 percent — one percentage point below its level before the Fed started cutting rates in September.