Fed officials find a bit of Zen on way to next policy decision
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[November 18, 2023] By
Ann Saphir and Michael S. Derby
(Reuters) - As Federal Reserve officials near the midway point between
their last policy meeting and the final one of the year, they appear to
be converging on a message of patience, a signal they intend to leave
interest rates unchanged as they wait for more evidence inflation is
cooling.
"We can take our time to do it right," San Francisco Fed President Mary
Daly on Friday told a central banking conference in Frankfurt, Germany,
referring to the U.S. central bank's battle to bring down high
inflation.
The Fed is not certain it's done enough to get inflation on track toward
its 2% goal, she said, but the full effect of its rapid rate increases
to date may be yet ahead. That uncertainty calls for "patience" and
"measured" policy adjustments, she said.
At the same time, Daly said she wants to communicate "resolve," a word
that central bankers typically surface to show they are not ruling out a
rate hike if needed, or mean to suggest rate cuts could come soon.
Speaking on CNBC, Boston Fed President Susan Collins also said the U.S.
central bank must be "patient and resolute, and I wouldn't take
additional firming off the table."
The Fed raised short-term borrowing costs aggressively last year, and in
July it delivered what many analysts now believe was the final rate hike
in its current inflation battle.
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Inflation by the Fed's preferred measure was 3.4% in September, down
from its 7.1% peak last summer, but above the central bank's target.
With labor markets rebalancing but inflation still too high, Collins
said, "the key point is we need to really stay the course."
After the Fed's decision in September to keep the policy rate in what is
still the current 5.25%-5.50% range, a number of U.S. central bankers
cited the rise in longer-term bond yields as one reason it may not need
to do any more policy tightening of its own.
Minutes of the Fed's Oct. 31-Nov. 1 meeting are due to be released on
Tuesday, and are expected to shed light on how much impact the higher
bond yields had on the Fed's decision to stand pat at that meeting.
YIELDS DECLINE
Since then, the yield on the 10-year Treasury note has dropped by about
half a percentage point from its mid-October near-5% peak, to the
potential discomfort of Fed policymakers.
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![](../images/111823PIX/busine69.jpg)
Federal Reserve Bank of San Francisco President Mary Daly poses for
a photograph at the Kansas City Federal Reserve Bank's annual
Economic Policy Symposium in Jackson Hole, Wyoming, U.S. August 25,
2023. REUTERS/Ann Saphir/File Photo
![](http://archives.lincolndailynews.com/2023/Nov/18/images/ads/current/graue_lda_SILVERTRUCK_091823.jpg)
But, as analysts at Deutsche Bank wrote on Friday, "while the recent
easing could produce a more hawkish Fed in theory, the Fed can
afford to be less concerned with this easing given recent data
showing progress on the labor market and inflation."
Collins did not directly comment on the recent retreat in yields but
did note that she was "seeing evidence of the kind of
restrictiveness that's consistent with the orderly slowdown that
we're looking for to realign demand with supply and continue the
inflation moderation that we need."
And while Chicago Fed President Austan Goolsbee on Friday
acknowledged the decline in the 10-year Treasury note yield, he said
he felt inflation is on track toward the Fed's target, as long as
housing price pressures ease, which he expects.
And he expressed increased confidence that the Fed can meet its
inflation goal without the kind of rise in unemployment seen in the
U.S. central bank's prior battles with inflation.
In October, the jobless rate was 3.9%, only a few tenths of a
percentage point higher than where it was when the Fed began raising
rates in March 2022.
Speaking on Thursday, Cleveland Fed President Loretta Mester, one of
the central bank's more hawkish policymakers, said she had not yet
assessed whether she would continue to pencil in a further rate
hike. Fresh economic and interest rate projections are due to be the
released at the Dec. 12-13 policy meeting.
(Reporting by Ann Saphir, Michael S. Derby, Pete Schroeder, Dan
Burns and Balazs Koranyi; Editing by Paul Simao)
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