Multiple Federal Reserve officials have stated: How much more can we cut? It's really uncertain

After the overnight release of the expected October CPI, Federal Reserve officials spoke, and "uncertainty" became a frequently used term. The increasing uncertainty has led officials to be more cautious about interest rate cuts and may pause the rate-cutting cycle.

On Wednesday, several Federal Reserve officials reiterated their uncertainty about how much the Fed needs to lower rates, highlighting the difficulty policymakers face in maintaining economic stability in a complex environment.

At an energy conference co-hosted by the Kansas City and Dallas Federal Reserve Banks, Kansas City Fed President Esther George stated in her speech:

Although it is now time to begin reducing monetary policy restrictions, how much further rates need to decline or where they might ultimately stabilize remains to be seen.

It is worth noting that other Federal Reserve officials also expressed similar cautious attitudes. Dallas Fed President Lorie Logan stated that the Fed would further cut rates, but there is uncertainty about the neutral level; St. Louis Fed President James Bullard indicated that any further rate cuts should be assessed "wisely and patiently" based on future economic data; Minneapolis Fed President Neel Kashkari believes that more time, about a month or six weeks, is needed to analyze the data before making any decisions.

Neutral interest rates may be higher, but uncertainty about how high remains

Currently, many believe that the neutral interest rate (the rate level that neither stimulates nor suppresses economic growth) may have risen since the pandemic began, but no one is confident about the exact level of the neutral interest rate.

In another speech at the same conference, Logan stated:

The uncertainty surrounding the neutral interest rate has also increased, possibly due to structural changes in the economy that require time for a comprehensive assessment.

Logan noted:

Widely referenced models place the neutral federal funds rate between 2.74% and 4.6%, and the midpoint of the Fed's policy rate is currently at the top of that range.

She believes the Fed will further cut rates, but should "proceed with caution" for now.

Inflation is moving in the right direction, but more data is needed for assessment

The report released overnight showed that the U.S. October CPI largely met economists' expectations, and Fed spokespersons generally expressed confidence that inflation is still on a downward trend, moving toward the 2% target. Investors have also moderately increased their bets on another rate cut by the Fed in December.

Minneapolis Fed President Kashkari stated:

I believe inflation is moving in the right direction, and I am confident about this, but we need to wait; we need about a month or six weeks to analyze the data before making any decisions.

Kashkari warned in an interview on Tuesday that if inflation unexpectedly rises before December, it could lead the Fed to pause rate cuts.

St. Louis Fed President Bullard indicated:

Recent information suggests that inflation may be stagnating on a downward trajectory, and the risk of it rising has increased. Data shows that the economy is "stronger than before, and possibly much stronger," and several inflation indicators have "slightly increased."

With inflation still above the Federal Reserve's 2% target, officials should maintain a policy of "moderate restraint." While mid-term inflation is expected to eventually fall back to 2%, officials should assess economic data "wisely and patiently" when considering further interest rate cuts.