Editor’s note: This story has been corrected to fix a quote from Minneapolis Fed President Neel Kashkari that was misattributed to Chicago Fed President Austan Goolsbee.

The Federal Reserve appears to be more concerned about inflation than previously anticipated, according to statements made by several officials on Thursday.

This follows assurances from Fed Chair Jerome Powell, who stated this week that recent inflation figures did not ‘materially change’ the overall picture and that it will most likely be appropriate to begin lowering rates.

Markets witnessed a sharp reversal at around 1:30 p.m. Thursday, on growing uncertainties about the likelihood of imminent rate cuts.

Fed Speakers Dash Hopes On Rate Cuts, Chill Markets

Richmond Fed President Tom Barkin intervened on Thursday, saying that early 2024 data is less encouraging, raising the issue of whether the outlook is shifting. The official said that “it is smart” for the Fed to take time on interest rate cuts.

The most notable change in tone came from Chicago Fed President Austan Goolsbee, a prominent dove on the Fed’s board. Expressing significant concern about housing inflation, Goolsbee warned that failing to address it could pose significant challenges to achieving the 2% inflation target.

“I had been expecting it to come down more quickly than it has,” Goolsbee said, adding that the “biggest danger to inflation picture is continued high inflation in housing services.”

Goolsbee rejected the idea that the recent inflation data were just a temporary, indicating that they cannot be disregarded as mere noise.

Echoing a more hawkish stance, Cleveland Fed President Loretta Mester doubted that this year’s pace of disinflation would match that of the previous year, advocating for additional months of data to assess inflation trends.

Minneapolis Fed President Neel Kashkari acknowledged penciling in two rate cuts for the year but questioned the need to ease monetary policy if inflation remains sideways.

“It’s possible [the] Fed won’t cut this year if inflation stalls,” Kashkari stated.

Market Reactions

Thursday’s Fed comments flipped markets sharply to the downside.

• The SPDR Dow Jones Industrial Average ETF (NYSE:DIA) was down by 1% at 3:20 p.m. in New York.
• The tech-heavy Invesco QQQ Trust (NASDAQ:QQQ) fell 0.9% for the session.
• The SPDR S&P 500 ETF (NYSE:SPY) eased 0.7%.
• Small caps, as tracked by the iShares Russell 2000 ETF (NYSE:IWM) inched 0.7% lower.

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Image generated using artificial intelligence via Midjourney.