Federal Reserve Signals Pause in Interest Rate Hikes



Key Takeaways

  • Federal Reserve members express their intention to wait and assess economic developments before committing to further interest rate hikes.
  • Policymakers cite a conundrum where American households maintain spending despite wage growth deceleration and a puzzle in the simultaneous heat in economic activity and moderated inflation.


Federal Reserve policymakers are suggesting a pause in their plans to raise interest rates for the next couple of months as they monitor a complex combination of economic indicators. This includes robust economic data, encouraging progress in addressing persistent high inflation rates, and the impact of rising long-term borrowing costs.

Mixed Signals Challenge Policymakers

Fed Governor Christopher Waller recently shared his view at the European Economics & Financial Center Seminar in London, emphasizing the need to observe how the economy evolves before making definitive decisions regarding interest rates. Waller described the “conundrum” of American households continuing their spending habits despite a slowdown in wage growth. Simultaneously, he highlighted the “puzzle” concerning elevated economic activity amid subdued inflation.


Waller emphasized that the current situation cannot persist, but it remains uncertain how the data will eventually unfold. In the event of an economic softening, Waller noted, “we can hold the policy rate steady.” However, if the economy demonstrates resilience and inflation remains stable or accelerates, he added that “more policy tightening is likely needed,” despite the recent rise in long-term rates.

Anticipating a Steady Stance

These remarks from one of the Federal Reserve’s more hawkish policymakers strongly imply that central bankers are poised to keep interest rates unchanged for the upcoming meeting on October 31-November 1. Nevertheless, they intend to maintain the possibility of implementing a rate hike by year-end.


Waller made it clear that discussing interest rate cuts is premature when the current focus remains on interest rate increases. He emphasized that their primary objective is to address and lower inflation effectively.


New York Fed President John Williams shared a similar perspective during an event at Queens College. Williams stated that the Fed should maintain a restrictive policy stance for an extended period to bring down inflation levels, acknowledging the progress made but highlighting the remaining challenges.

Inflation and Rate Considerations

In response to last year’s 40-year high in inflation, the Fed substantially raised its policy rate, ultimately stabilizing within the range of 5.25% to 5.50%. Policymakers are now evaluating whether this rate range is sufficient to guide inflation toward their 2% target.


According to Waller, the Fed’s preferred inflation measure, the personal consumption expenditures price index, stands at approximately 3.5%, with underlying inflation, excluding food and energy, at 3.9%. Some Fed officials, including Waller, contend that the nearly full percentage point increase in the 10-year Treasury note yield since the July rate hike will likely temper demand and economic activity, potentially reducing the Fed’s necessity to intervene.

Challenges in Assessing Economic Health

The assessment of interest rate adequacy is further complicated by the feedback from businesses and households in the districts of policymakers. While “hard” economic data indicates resilience, anecdotal reports suggest weakening growth.


The Fed’s most recent “Beige Book” report, released on Wednesday, revealed that regional Fed banks reported minimal change in economic activity in the six weeks ending October 6. This tepid assessment underscores the contrast between robust economic data and on-the-ground narratives that portray a different story.