Markets, Fed Still at Odds Over Outlook for Economy
"We can easily imagine having to make room for more rate cuts than we are currently forecasting if the news on the economy and the markets stays as troubling as it has been
lately," Goldman Sachs economists said in a recent research note. Goldman currently expects the federal funds rate to reach 4 percent by the end of the first quarter.
In unusually direct comments Friday, Fed Governor Randall Kroszner said more rate cuts did not appear warranted, even though growth looked set to weaken in the near term.
"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," he said.
Other policy-makers have offered a similar, if less direct, message, with little impact on market expectations.
Changing Rate Forecast
JPMorgan changed its Fed call late last week, saying it now expected a quarter-percentage point cut in both December and January due to growing downside risks to the economy. It had
previously thought the Fed would be on hold at both meetings.
Allan Meltzer, a professor at Carnegie Mellon University, said the markets had forced the Fed's hand to lower rates last month and it appeared they would do so again in December.
"As the market has priced in a cut, the Fed is where it was" before its last meeting, he said, speaking at the Council on Foreign Relations with Feldstein.
High oil prices, which have hovered below $100 a barrel, would dampen consumer spending but the Fed could do little about that directly, he said, adding that he thought the economy would avoid recession nevertheless.
On Tuesday, the Fed will have another chance to bring markets closer to its view. Along with minutes of its last rate meeting on Oct. 30-31, it will release updated forecasts from
In the past, the central bank released such forecasts twice a year, but Tuesday it will begin releasing them quarterly and in an expanded format that will provide more detail on how
officials view the outlook.