Financial Link News October 12 (Editor Liu Rui) At a time when the higher-than-expected CPI data in the United States has disrupted market sentiment, the statements of Federal Reserve officials have become an important factor affecting market expectations of the Fed's future rate cut path.

On Friday, Eastern Time, Dallas Fed President Lorie Logan reiterated her view that interest rates should gradually move to a more normal level by adopting a "gradual" rate cut.

A CPI data stirred up the market

Last month, the Fed cut interest rates for the first time in four years, a significant 50 basis points cut. The reason the Fed made such a large rate cut is that there are signs of weakness in the U.S. labor market, while inflation is also falling back towards the Fed's 2% target.

However, the path of cooling inflation in the United States is not smooth sailing. Eastern Time this Wednesday, Logan warned that there are still upward risks to inflation in the United States.

Corroborating her remarks, a data released this Thursday. The data shows that potential inflation in the United States in September was higher than expected. The U.S. core consumer price index (excluding food and energy costs) rose for the second consecutive month by 0.3%, breaking the trend of continuous decline.

This unexpected data disrupted market expectations for a Fed rate cut before the end of the year.

After the data was released, several Federal Reserve officials, including New York Federal Reserve Bank President John Williams, indicated that they were not overly concerned about this CPI data and hinted at their support for further interest rate cuts.

However, Atlanta Federal Reserve Bank President Raphael Bostic expressed an open attitude towards not cutting interest rates in the remaining two Fed meetings this year after seeing this data:

"Recent erratic data suggests that maybe we should pause the interest rate cuts in November. I am absolutely open to this."

Bostic's remarks temporarily raised the probability of no interest rate cut in November to about 25% in the market, making the Fed's interest rate cut prospects even more uncertain.

Logan reiterated: support for gradual interest rate cuts

Last Wednesday, Logan had expressed support for a "gradual" interest rate cuts. And this Friday, amidst unexpected inflation data unsettling the market sentiment, Logan once again reaffirmed that she supports taking a "gradual" approach to interest rate cuts.

Logan also believes that although the U.S. economy is 'strong and stable,' there are also 'significant' risks ahead. Logan stated: 'As we move towards a neutral path, looking ahead is really important, and we need to balance the risks we face in a very gradual way.'

Compared to Bostic's 'no interest rate cuts' remarks, Logan's overall position still leans towards the 'neutral camp,' supporting rate cuts but not too rapid cuts. She believes that in the long-term trend, the cooling off of inflation in the United States is 'very broad.'

Considering the initial claims data in the USA also rose, combined with the optimistic statements from other Federal Reserve officials including Logan, as of the manuscript deadline, the market's expectation of 'no rate cut' has significantly diminished.

According to cme's Federal Reserve Observation Tool, as of the manuscript deadline, the market expects a 10.5% probability of no rate cut by the Federal Reserve in November, while the probability of a 25 basis point rate cut is 89.5%.

Editor/ping