Fed to markets: Not so fast on those rate cuts

Financial markets went wild last week after communications out of the Fed suggested multiple rate cuts are on the way next year. Fed officials noticed and appear to believe the reaction was overblown.

What they're saying: "We've made a lot of progress in 2023, but I still caution everyone, it's not done," said Chicago Fed president Austan Goolsbee on CBS' "Face the Nation" Sunday.

• "We've got to get inflation down to target," he said. "Until we're convinced that we're on path to that, it's an overstatement to be counting the chickens."
• Goolsbee has been an anchor of the dovish wing of the Fed's policy committee — seemingly more open to rate cuts than some of his colleagues. That gives his skepticism of the rate-cuts-soon narrative extra weight.

Meanwhile, Cleveland Fed president Loretta Mester said in an interview published Monday morning that "markets are a little bit ahead."

• "They jumped to the end part, which is 'We're going to normalise quickly,' and I don't see that," Mester told the Financial Times.
• The comments from Goolsbee and Mester follow similar cold water thrown by New York Fed president John Williams on Friday.

Between the lines: It's the nature of markets to get ahead of Fed officials. What matters for stock and bond prices is what the Fed ultimately ends up doing on rate cuts, not what officials say today.

• But the latest round of comments make clear that the Fed won't deliver the rate cuts Wall Street wants unless and until the economic data, especially around inflation, cooperates.