Fed officials confident inflation is cooling enough for interest rate cuts

Fed officials are also veering around to the view that they will take their cues on the size and timing of those rate cuts not from stock market turmoil, but from the economic data.

A Reuters report, citing three central bankers, said that was the shared message from the bankers.

A jump in the July US unemployment rate reported last Friday sparked a global stock market rout that continued into Monday before equities partially recovered, as investors and analysts worried the US was headed for a recession.

Investors and several economists also felt the Fed would need to react aggressively.

“It’s hard to make the case that something has just happened that is monumental on the equity side,” the report said, citing Richmond Federal Reserve Bank President Thomas Barkin.

Barkin said major US stock market indices are still up from the start of the year.

More to the point on policy, he said at a virtual event put on by the National Association for Business Economics, is “all the elements of inflation seem to be settling down (and) I’m relatively hopeful based on the conversations I’m having that that’s going to continue.”

Those same conversations with business leaders also suggest the cooling in the US labour market is coming from slower hiring rather than a rise in layoffs, he said.

Kansas City Fed President Jeff Schmid, one of the US central bank’s more hawkish policymakers, said financial conditions can both reveal important information on the trajectory of the economy and can also spillover to impact the real economy.

In remarks prepared for delivery to the Kansas Bankers Association’s annual meeting in Colorado Springs, Colorado, Schmid, however, said: “The Fed has to remain focused on achieving its dual mandate of full employment and price stability.”

Inflation outlook

On that score, he said, recent “encouraging” data showing inflation around 2.5 percent gives him more confidence inflation is headed to the Fed’s 2 percent goal.

Schmid described the economy as resilient, consumer demand as strong, and the labour market as noticeably cooling but still “quite healthy”, and said he views the current policy stance as “not that restrictive”.

Chicago Fed President Austan Goolsbee reiterated his view the central bank’s policy is tight, and that to leave borrowing costs where they are even as inflation falls is to make it even tighter, risking harm to the labour market.

But like his more hawkish counterparts, Goolsbee said the stock market, and the upcoming presidential election, would not determine Fed policy.

“The Fed’s out of the election business. The Fed is in the economic business,” Goolsbee said in an interview on Fox News.

“We’re not in the business of responding to the stock market. We’re in the business of maximising employment and stabilising prices,” he said.