A recent inflation report has arrived at a critical moment for Federal Reserve policymakers as they evaluate their next interest rate decisions. Chicago Fed President Austan Goolsbee described the figures as borderline disturbing, noting that the data complicates the central bank’s path forward.
Fed Officials Respond to Inflation Data
Goolsbee’s remarks followed comments from other Federal Reserve officials on Tuesday suggesting the rate-setting Federal Open Market Committee may need to take more decisive action to control inflation. While the central bank typically adjusts rates by a quarter-percentage point, Fed Governor Christopher Waller stated in London earlier on Tuesday that a high inflation reading could prompt him to support a larger half-point increase in December if core consumer prices rose around 0.3%. Hours later, the core CPI metric met that exact threshold.
Dallas Fed President Lorie Logan stated after the report’s release that she sees a need for two additional quarter-point increases, adding that moving more rapidly this winter than during the fall could be possible. Conversely, Philadelphia Fed President Anna Paulson maintained a more cautious outlook, acknowledging that persistent inflation pressures remain but arguing the central bank does not need to rush its actions. Paulson stated that further gradual tightening currently appears appropriate while noting she will monitor economic data closely.
The committee previously raised rates by a quarter point to a range of 3.75%-4% in September before voting to keep them steady in October. Goolsbee emphasized that a major concern is the possibility of consumers and businesses beginning to anticipate sustained high inflation, which could make cooling the economy significantly more painful. However, Goolsbee refrained from stating whether he believes the Fed should hike rates at the upcoming December policy meeting, explaining that he prefers not to tie the committee’s hands for future meetings.
Market Expectations for December Meeting
Waller, Logan, and Paulson hold voting rights on the FOMC this year and will participate in the rate decision at the final meeting of the year in December, while Goolsbee will become a voting member next year. Following the inflation release and subsequent remarks from central bank officials, fed funds futures via CME’s FedWatch tool now unanimously anticipate a rate hike at the December gathering.
Market participants are currently debating whether the central bank will implement a quarter-point or a half-point rate increase, with fed funds futures pricing the odds of a half-point hike at 15%. Additionally, the probability of interest rates reaching 4.25%-4.5% by the January meeting stands at 60%, with a 10% chance of rates climbing to 4.5%-4.75% by that time.
