Fed Officials Cite Progress Vs Inflation, Reinforcing Idea That Rate-Hike Cycle is Over

The Federal Reserve Headquarters in Washington DC on a sunny day

Bjarte Rettedal / Getty Images

Key Takeaways

  • Federal Reserve officials speaking this week have acknowledged the central bank is well on its way to vanquishing high inflation.
  • The Fed's campaign of anti-inflation rate hikes have pushed up borrowing costs, and inflation has fallen, with a key report Tuesday showing that price increases are slowing down faster than expected.
  • Market participants overwhelmingly believe the Fed's next move will be to cut the fed funds rate, not raise it again.
  • One Fed official emphasized that keeping the benchmark interest rate too high could unnecessarily hurt the economy.

Officials at the Federal Reserve aren’t ready to do a victory lap in the wake of this week’s reports showing tamer price increases than expected—but they are acknowledging progress, perhaps with the rhetorical equivalent of a satisfied nod.

Several officials who gave public speeches this week discussed Tuesday’s report on the Consumer Price Index, which showed inflation rose 3.2% over the year as of October, continuing to fall towards the Fed’s objective of a 2% annual rate. 

Market participants saw the report as a turning point. Observers have increasingly speculated about when the Fed will start reversing its campaign of anti-inflation interest rate hikes, which have driven up interest rates on all kinds of loans. Fed officials themselves were more restrained.

Chicago Fed chair Austan Goolsbee, speaking Tuesday at the Detroit Economic Club, said the report “looked pretty good,” and that there was “slow but clear progress” across different categories of goods and services. Goolsbee is a voter on the Federal Open Market Committee, the group that sets interest rates and whose membership includes presidents of the regional Federal Reserve banks on a rotating basis.

Lisa Cook, a governor of the Federal Reserve Board and also a member of the FOMC, spoke at an economic conference at the Federal Reserve Bank of San Francisco Thursday but didn’t directly mention the October report. She did, however, emphasize the risks of the Fed setting its key interest rate too high, according to prepared remarks.

By raising the Fed funds rate to a 22-year high, the Fed has pushed up borrowing costs enough to put the finances of businesses and households under pressure. Some economists expect the Fed to start cutting its rate in a matter of months lest the economy fall into a recession resulting in mass layoffs, a risk that Cook acknowledged.

“I am also attuned to the risk of an unnecessarily sharp decline in economic activity and employment,” Cook said. “Some parts of the economy are showing strain from tighter financial conditions.”

Loretta Mester, president of the Federal Reserve Bank of Cleveland and an alternate member of the FOMC, acknowledged the progress but stopped short of declaring victory in an interview with CNBC Thursday.

“We’re making progress on inflation, discernible progress,” she said. “We need to see more of that continuing…. We are going to have to see much more evidence that inflation is on a timely path back to 2%.”

Traders are pricing in just a 0.3% chance that the FOMC would raise interest rates at its next meeting in December. That’s down from the 34% chance priced in a month ago, according to the CME Group’s FedWatch tool, which forecasts rate changes based on fed futures trading data. Some traders have started to price in the possibility of a rate cut as soon as January, and the fed futures trading data shows about a 33% chance of a cut at the March meeting.

Do you have a news tip for Investopedia reporters? Please email us at
Article Sources
Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy.
  1. YouTube, Detroit Economic Club. "A Conversation on the Economy and Monetary Policy."

  2. Federal Reserve. "Global Linkages: Supply, Spillovers, and Common Challenges."

  3. CNBC. "Fed’s Mester wants ‘much more evidence’ that inflation has been defeated."

  4. CME Group. "FedWatch Tool."

Open a New Bank Account
The offers that appear in this table are from partnerships from which Investopedia receives compensation. This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace.