In a recent string of events, the US Federal Reserve has indicated a cautious approach towards future interest rate hikes. This comes amid signs of softening in the US jobs market and inflation levels remaining above the Fed's long-term target of two percent.
On Tuesday, Federal Reserve Governor Christopher Waller expressed a cautious stance, mirroring sentiments previously shared by Fed Chair Jerome Powell at the Jackson Hole economic symposium in Wyoming at the end of August. Waller suggested that there was no urgency for immediate action and that the Fed could afford to wait and see how data evolves. "There's nothing that is saying we need to do anything imminent any time soon, so we can just sit there, wait for the data, see if things continue," Waller said during an interview with CNBC.
This statement followed last week's jobs data, which Waller described as a "good week of data". The softening jobs market is a key precondition for the Fed to consider ending its cycle of monetary tightening. The central bank has raised interest rates 11 times since March last year in an effort to control inflation.
Despite making significant progress, inflation remains stubbornly above the Fed's target. The key lending rate was raised to its highest level in 22 years in July. However, Waller indicated that further rate hikes could still be on the table if deemed necessary to tackle inflation. "I don’t think one more hike would necessarily throw the economy into a recession if we did feel we needed to do one,” he told CNBC.
Investors and analysts are overwhelmingly expecting the Fed to pause its hiking cycle at its next rate-setting meeting on September 19-20, while keeping the possibility of another hike later in the year alive. Futures traders currently place the probability of a rate pause in September at 95 percent, and the chance of another hike in November at around 40 percent, according to data from CME Group (NASDAQ:CME).
As such, the Federal Reserve appears prepared to maintain a flexible approach in managing monetary policy over the coming months, keeping all options open as it continues to monitor economic conditions closely.
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