Dovish officials refute optimistic market expectations: Rate cuts are necessary, but not immediate

Although it is certain that the Federal Reserve will start cutting interest rates next year, when and how much to cut is still a mystery. Fed officials also do not want to give the market too much optimistic expectation. In the week following the monetary policy meeting, several Fed officials were busy refuting market speculation about rate cuts. Patrick Harker, the FOMC voting member and president of the Philadelphia Fed, said in a television interview on Wednesday that while the Fed does need to cut rates, it won't be immediate: "It is important to start bringing rates down, but we don't have to do it too quickly, nor do we need to start immediately." Compared to the harsh rhetoric of other officials, Harker's attitude is much more moderate, at least he is willing to admit that the Fed's next move is to cut rates. Harker believes that the slowdown in the economy seems to be faster than what the government data shows, after all, data always lags behind. Fed Chairman Powell said at a press conference last week that the Fed has started discussing rate cuts, and the market immediately began to expect that the Fed may start cutting rates by 25 basis points from March, with a total of six cuts totaling 150 basis points. According to the Fed's official forecast, there will only be three rate cuts next year. As a voting member in 2023, Harker will not vote on next year's policies, but he will participate in the discussions during the FOMC meetings. He did not specify when it would be appropriate for the Fed to start cutting rates, nor did he reveal how many times he thinks rates will be cut next year. In the interview on Wednesday, he also pointed out that the biggest challenge facing businesses at the moment is the cost of capital, and reducing borrowing costs will help address this issue. Harker is a representative of the dovish faction in the Fed. He has long supported the end of the tightening policy and emphasized in October that the Fed should not overreact to monthly data fluctuations.