The Federal Reserve is unlikely to change its policy stance unless the economy slows more sharply than expected, a top Fed policymaker said in a Dow Jones interview released on Friday which cast doubt on market expectations for more interest rate cuts.
St. Louis Fed President William Poole, a voting member of the central bank's rate-setting Open Market Committee, said it would take unexpectedly weak fourth-quarter data to alter the Fed's view that risks are balanced between higher inflation and weaker growth.
"The changes in the policy stance depend on the arrival of new information," Poole said in the interview.
The Fed cut interest rates on Oct. 31 by a quarter point to 4.5 percent, following a half point cut in September, but said inflation and growth risks were roughly balanced.
Financial markets, though, have leaned toward expecting another rate cut at the Fed's next meeting in December.
Poole told Dow Jones that he agrees with the current consensus view of forecasters who see a period of weakness before growth begins to improve again next year.
"So, if the fourth quarter comes in exactly as anticipated, and given that there's already been 75 basis 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 dollar firmed against the yen on Poole's remarks while U.S. Treasury prices fell.
Poole noted while policy makers pay attention to what markets expect, he said that "if all the Fed does is follow the market, there can only be chaos. The Fed must lead this process."
Poole also said he was optimistic that trouble in credit markets were winding down and said he did not expect the U.S. economy to tip into recession.