Latest talks of Fed officials flash mixed signals for markets

Having witnessed firmer US employment numbers and a disappointment from the ISM Services PMI for December, multiple Federal Reserve (Fed) officials opined for the US economic conditions and the central bank’s next move.

Notable among them were Atlanta Federal Reserve President Raphael Bostic, Outgoing Chicago Fed President Charles Evans, Kansas City Fed President Esther George and Richmond Federal Reserve Bank President Thomas Barkin.

Firstly, the Wall Street Journal (WSJ) quoted Chicago Fed President Evans saying, “It was possible the economic data would support raising the policy rate by 25 basis points at the Fed's next gathering.”

“The Fed is in a good spot having stepped down to a 50-basis-point increase in December,” added Fed’s Evans per WSJ reported Reuters.

The news also mentioned Chicago Fed President as saying, "If they step it down again to 25 basis points that allows a little more time - as they continue to increase the funds rate to the same point that I was expecting - to let the data evolve.”

Following him were the additional comments from Atlanta Fed President Bostic who mentioned that the holiday shopping numbers could influence rate decision, “if consumers proved more or less resilient”. The policymaker previously raised possibilities of the US economic slowdown on Friday.

Also read: Fed's Bostic: US economy is definitely slowing

Additionally, Kansas City Fed President Esther George signalled that the longer inflation stays high, the greater the chance it will get embedded and will be more costly to combat. The policymaker also stated that the renewed inflation pressures from energy, crop prices are ‘very real risk’. “How much additional policy tightening will be needed is an ‘essential aspect’ of deliberations,” per Fed’s George.

Richmond Fed President Barkin praised the last two months of inflation reports by terming them as “a step in the right direction,” but marked fears from the higher median figures. “Studies forecast 6-12 months before pullbacks in demand quiet the rate of inflation,” added Fed’s Barkin.

The policymaker also stated that more gradual interest rate path should limit harm to economy while also adding, “(It) makes sense to steer more deliberately on rates in context of policy lags.”

Market implications

Despite the mixed comments from the Fed officials, the majority of them do support softer rate hikes, which in turn suggests further hardships for the US Dollar.

Also read: EUR/USD Weekly Forecast: US Dollar starts off 2023 on the right foot