December 15 (Reuters) - Just days after a Federal Reserve meeting that penciled in an abundant path of interest rate decreases next year, sparking a broad rise in financial markets, one of the United States' top officials pushed back on the euphoria on Friday.
"We aren't really talking about rate cuts right now," New York Fed President John Williams told CNBC. When it comes to interest rate cuts, "I just think it's just premature to even think about that," he added, as the Fed continues to consider whether monetary policy is in the appropriate place to assist lead inflation back to its 2% target.
Williams was the first Fed member to comment after the central bank's policy meeting this week, during which it kept its benchmark overnight interest rate in the 5.25%-5.50% range unchanged. With rates stable, the substantial adjustment in the Fed's view was connected to projections of monetary policy easing next year.
Fed officials' predictions collectively priced in a quarter-point decrease in 2024, leaving the policy rate in the 4.50%-4.75% range by the end of 2024. These estimates summarize policymakers' views and are not an official Fed perspective, but they are carefully monitored, and the statistics helped drive bond yields down while driving stock prices up.
Fed Chair Jerome Powell acknowledged the shift in views in a press conference following the two-day meeting on Wednesday, explaining how the forecasts work while acknowledging "the question of when will it become appropriate to begin dialing back the amount of policy restraint in place, that begins to come into view, and is clearly a topic of discussion out in the world, and also a discussion for us at our meeting today."
'EXPLAIN' THE MESSAGE
Some market participants regarded Williams' participation as an attempt to reinterpret the message that markets took away from both the policy meeting and Powell's remarks to reporters.
Williams' interview is "intended to lean against speculation on a March cut without ruling it out, and slow the sense in markets of a Fed rush towards cutting following Powell's very dovish December press conference," Evercore ISI analysts said.
"Deploying the N.Y. Fed president in this manner is standard practice when the Fed leadership wants to 'clarify' the message, but market pricing moved only modestly in response to his comments, reflecting investor conviction that the data is moving in support of earlier/deeper cuts."
Futures markets initially shook in response to Williams' remarks, but they settled on March as the date when the Fed will begin decreasing rates. The FedWatch Tool at CME Group maintained a substantial chance of a March cut, with opinions divided on the path of cuts following that.
Later that day, in an interview with Reuters, Atlanta Fed President Raphael Bostic provided a monetary policy perspective that was at variance with the market's, projecting the probability of a rate drop in the third quarter of next year.
Bostic, who will be a voting member of the Federal Open Market Committee in 2024, predicted that inflation, as measured by the personal consumption expenditures price index, would end next year at around 2.4%, which would be enough progress toward the Fed's 2% target to warrant two quarter-point rate cuts in the second half of 2024.
"I'm not really feeling that this is an imminent thing," Bostic said of easing, adding that policymakers will need "several months" to amass enough data and confidence that inflation will continue to decrease before moving away from the policy rate's current range.
Meanwhile, Chicago Fed President Austan Goolsbee told the Wall Street Journal that it is increasingly likely that the central bank will need to change its focus from inflation to employment, the second part of its dual mandate. He also told the publication that a rate cut in March was not out of the question.
Against all the talk of rate cuts, Williams reminded markets that the Fed might yet go the other way.
In terms of the economy, "the base case is looking pretty good: inflation is coming down, the economy remains strong, and unemployment is low." With that in mind, "one thing we've learned, even over the past year, is that the data can move in surprising ways," he said, adding that "we need to be ready to move further if inflation, the progress of inflation were to stall or reverse."
