Fed/Mester: Markets are ahead of Fed on rate cut

Cleveland Fed President Loretta Mester has warned that markets are “a little ahead” of the Fed in terms of normalizing monetary policy next year. Cleveland Fed President Mester said markets are “a little ahead” of the Fed in terms of cutting rates. Speaking to the Financial Times, Mester disputed expectations that the bank will cut rates anytime soon. “The next phase, contrary to market expectations, is not when rates will come down, but how much more restrictive monetary policy should remain until inflation is sustainably and appropriately brought down to the 2% target,” Mester said. “The markets are a little ahead of the Fed in terms of cutting rates and we are at the stage where normalization will start quickly, but I don’t see a rapid normalization,” Mester said. Market expectations for rate cuts have accelerated since the Fed’s last meeting. The Fed’s latest projections had called for a total rate cut of 75 basis points in 2024. Mester said they will be closely monitoring how quickly one-year inflation expectations fall to target. Chicago Fed President Austin Goolsbee made a similar statement in an interview with CNBC, saying that markets' expectations for a rate cut are ahead of Fed projections. Goolsbee said the Fed should not act based on the market's reaction.