Multiple regional Federal Reserve presidents express caution over excessive rate cuts, and the dollar index rises for the third consecutive day

According to the Zhitong Finance APP, several regional Federal Reserve presidents publicly expressed their dissatisfaction with the interest rate cut decision this week, indicating that the internal divisions regarding the future interest rate path within the Federal Reserve are rapidly widening. Multiple officials stated that the current U.S. labor market remains resilient and inflation levels are still high, thus there is no need for a 25 basis point rate cut this week, nor do they support further easing at the December meeting.

Dallas Federal Reserve President Logan stated that she "does not see the necessity for a rate cut this week," and unless inflation falls significantly faster than expected in the future or the labor market cools noticeably, she would find it difficult to support another rate cut in December. Cleveland Federal Reserve President Harker also criticized this week's rate cut, stating that current rates are "almost close to neutral," and if the Fed continues to cut rates, it will lose its policy restraint, which is detrimental to bringing inflation back to the 2% target.

Federal Reserve Chairman Powell, at a rare press conference following Wednesday's policy meeting, issued a clear warning to the market, stating that a rate cut in December is "by no means a done deal," and pointed out the "clear divisions" within the decision-making body. The market had almost fully priced in another rate cut in December, but expectations quickly cooled after Powell's remarks, although traders still believe the probability of a rate cut is greater than that of no cut.

Atlanta Federal Reserve President Bostic stated that Powell must demonstrate to the market that there are significant differences of opinion internally, otherwise the market will misjudge the interest rate path. He also mentioned that while he ultimately supports this week's rate cut, he feels "uneasy" about the policy rate getting closer to the neutral range, as this could weaken the fight against inflation.

Kansas City Federal Reserve President George criticized that the current U.S. economy still has momentum, the job market is "basically balanced," and the pressures in the labor market stem more from technological changes and demographic shifts rather than cooling demand. Therefore, a rate cut would have limited effects on improving employment but could potentially damage the Fed's credibility in achieving the 2% inflation target.

As the U.S. government shutdown continues for over 30 days, the release of official economic data has been paused, forcing Federal Reserve decision-makers to rely on business surveys and corporate feedback to assess economic conditions, further amplifying internal uncertainties. Several officials acknowledged that this will make future policy discussions more difficult and suggests that the debates at the December policy meeting may be much more intense than the market expects.

Amid increasing policy uncertainty and financial markets repricing the Federal Reserve's path, the U.S. dollar index rose for the third consecutive day, with a cumulative increase of 1.6% this month, marking the second strongest monthly performance this year. The strengthening of the dollar is driven not only by Powell's remarks "suppressing rate cut expectations" but also by the domestic economic and fiscal pressures faced by other major economies. The euro fell to a two-month low due to a downgrade in France's fiscal rating, the pound was pressured by the worsening U.K. fiscal deficit, and the yen weakened due to market expectations that Japan would introduce a larger-scale stimulus plan.

The U.S. government shutdown has led to a lack of economic data, making the dollar more attractive to safe-haven funds. Analysts believe that the absence of official data releases "instead leads investors to bet that the U.S. economy remains resilient," while allowing the dollar to maintain its strength in the short term. Some institutions that were originally bearish on the dollar have also begun to shift their stance. Morgan Stanley announced this week that it has withdrawn its short recommendation on the dollar, citing the resilience of U.S. economic growth and the market's reassessment of the ultimate endpoint of the Federal Reserve's policy rate Against the backdrop of a general weakening of global currencies against the US dollar, several investment banks expect the dollar's strength to continue until the end of the year or even early 2026, with the options market also showing a rise in bullish sentiment towards the dollar. Some hedge funds are re-betting on further appreciation of the dollar, while Asian currencies have generally weakened this month, with the Korean won and Japanese yen leading the declines