A Federal Reserve official said Monday that the market may have misunderstood the central bank’s intended message last week after stocks and bonds rose sharply.
The Fed voted last week to keep interest rates stable again, and its updated forecasts showed three rate cuts are expected in 2024. This led to a rally in stocks and bonds, with the Dow Jones Industrial Average jumping to a record high.
“It doesn’t matter what you say or what the chairman says. It’s about what they heard and what they wanted to hear,” Chicago Fed President Austan Goolsbee said on CNBC’s “Squawk Box.” “I was a bit confused – was the market just assuming what we expected it to do?”
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The Dow hit a record high last week.
The Fed chairman also rejected the idea that the Fed is actively planning a series of interest rate cuts.
“We do not debate speculatively about specific policies about the future. We are voting on this meeting,” he said.
Trading in the options market implies that traders see 3.75% to 4.00% as the most likely range for the Fed’s key interest rate at the end of 2024, according to the CME FedWatch Tool. That would be a cut six quarter points below the Fed’s current interest rate, or double what was projected in the central bank’s summary of economic forecasts.
Goolsbee did not specifically say that the market prices were wrong, but he did emphasize this difference.
“The market expectation for the number of rate cuts is greater than the SEP forecast,” Goolsbee said.
Goolsbee isn’t the only Fed official to downplay the meeting amid the market rally. New York Fed President John Williams said on CNBC’s “Squawk Box” on Friday that “we’re not really talking about rate cuts right now.”
Originally posted 2023-12-18 15:24:17.