Doubts grow over US rate reduction in Dec

A growing number of Federal Reserve policymakers are signalling reticence on further cuts to US interest rates, helping push financial market-based odds of a reduction in borrowing costs in December to below 50 per cent.

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Doubts about a Fed rate cut in December sank US stocks on Nov 13, with S&P 500 sinking 1.66 per cent, the Nasdaq 2.29 per cent and the Dow 1.65 per cent.

As if to underscore the knife-edge decision, San Francisco Fed president Mary Daly - until now a firm supporter of the Fed’s rate cuts — said on Nov 13 that any decision about four weeks ahead of the next policy meeting is “premature.”

“I have an open mind, but I haven’t made a final decision on what I think, and I’m looking forward to debating with my colleagues,” Dr Daly said during an event in Dublin, Ireland.

Minneapolis Fed president Neel Kashkari, who, like Dr Daly, said just a couple of months ago that he felt a third rate cut by the end of this year would be warranted, told Bloomberg News on Nov 13 that he had opposed October’s rate cut because of resilience in the US economy, and is on the fence about December.

“We have inflation that’s still too high, running at about 3 per cent,” he said in brief welcoming remarks earlier in the day at a conference hosted by his regional Fed bank. “Some sectors of the US economy look like they’re doing great. Some sectors of the labour market look like they’re under pressure.”