Comments From the Fed About Future Rate Cuts – Not Likely

According to Mr. Kroszner, a Fed Governor, the chances of a rate decrease are fairly low in December. Of course the December meeting is not here yet so we will see. Text in bold is my emphasis. From the WSJ:

A Federal Reserve official sent one of the clearest signals yet the central bank isn't inclined to cut rates further, even when stocks sink and economic data turn sour.

"The current stance of monetary policy should help the economy get through the rough patch during the next year, with growth then likely to return to its longer-run sustainable rate," Fed Governor Randall Kroszner said in prepared remarks before the Institute of International Finance in New York.

"The economy will probably go through a rough patch during which a number of economic-data releases may be downbeat," he said. But the weaker data "would not, by themselves, suggest to me that the current stance of monetary policy is inappropriate."

Mr. Kroszner joined the Fed last year and has said little about the monetary-policy outlook since then. While it isn't clear how representative he is of the entire Fed, his message of steady rates is similar to, though more explicit than, that of Chairman Ben Bernanke's recent congressional testimony.

Federal Reserve Bank of St. Louis President William Poole sent a similar signal. "The changes in the policy stance depend on the arrival of new information," Mr. Poole said in an interview Thursday with Dow Jones Newswires. He said he agrees with private forecasters that the fourth quarter will be weak. "So, if the fourth quarter comes in exactly as anticipated, and given that there's already been [0.75 percentage] points of easing, and given that we can't affect the fourth quarter anyway -- the fourth quarter is going to be irrelevant to the December decision unless it tells us something about next year we don't already know," he said.

The Fed lowered its target for the federal funds rate, charged on overnight loans between banks, from 5.25% to 4.75% in September, then to 4.5% last month. Mr. Kroszner suggested his vote in favor of the last cut was a close call. The reduction was intended to limit economic risks, he said. However, between the September and October FOMC meetings, higher energy prices and the falling dollar had increased inflation risks, which "raised the costs of easing policy to manage the macroeconomic risks."

Mr. Kroszner said Friday that "the limited data and information received since the October FOMC meeting have not changed my thinking" that growth and inflation risks are balanced. "Looking forward, one feature of monetary policy to keep in mind is that, all else equal, each successive action in the same direction tends to lower the incremental benefits and to raise the incremental costs of additional actions," Mr. Kroszner said.

Despite a Fed statement accompanying the last rate cut and various speeches suggesting rates are on hold, futures markets are pricing in another quarter-point rate cut next month. Mr. Kroszner's speech had little impact on that pricing. Investors may see bigger risks to the economy in financial-market developments than the Fed does.