No Need For Further Leniency In Monetary Policy – Chicago Fed President

on Oct 17, 2019
Updated: Mar 11, 2020

The reports of the last few weeks have highlighted that the Federal Reserve is still open to the idea of a third rate cut this year. Owing to the impact that it can potentially cast on the U.S dollar index, foreign exchange, and other global financial markets at large, the rumors circling a potentially imminent rate cut have assumed the role of shaping the strategies for the investors.

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Chicago Fed President Doesn’t See A Need For Another Rate Cut

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A recent announcement by Mr. Charles Evans, the current president of Chicago Federal Reserve Bank, however, has expressed his dissent for the need for further leniency in the monetary policy. FOMC’s voting member was reported stating on Wednesday that in consideration to the financial data and figures for U.S economy, the first two rate cuts this year were the need of the hour. However, he doesn’t see a good reason for a third one just yet. While he acknowledged that the economy has been softening lately, he opinionated that it is still in reasonably good shape.

In his speech in Peoria, Illinois, Mr. Evans remarked that the current growth outlook accentuates that it is possible for the rate cut to be pushed back a little. The figure for annual inflation may not be in favor but the policy is already befitting to accommodate for that. He further added that uncertainties in the economic outlook are evident. But as long as these unfold against the U.S economy and hit it with a few surprises, there is no need for another rate cut this year.

Mr. Evans has expressed his support for the original consensus regarding another rate cut in the Federal Open Market Committee. The initial forecast, as he reported, was for no further leniency in monetary policy for the year 2019. The year 2020 was also agreed for no further reduction in the interest rates while the next two years were proposed for one rate cut each. He has also verbalized the concern of rising stock prices and the consequent financial imbalances that can potentially be derived from further leniency in the monetary policy. He has implored the authorities to realize that the monetary policy alone can only accomplish so much.

Expectations For Further Leniency In Monetary Policy

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Despite a few of the FOMC members commenting their disagreement with the idea of another rate cut this year, the anticipation for one in the FOMC meeting set for October 29th – 30th is higher than ever. As per the figure released by CME’s FedWatch on Wednesday morning, the probability of further reduction in interest rates by the end of the month currently stands firm at 88%.



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