Morning Chronicle - US Fed official warns against cutting rates 'too quickly'

The Fed's favored inflation gauge has dropped sharply following a series of interest rate hikes in recent years, and now sits just above its long-term target of two percent.

At the same time, the labor market has weakened slightly, while remaining robust overall, and economic growth has been strong.

In response to these developments, the US central bank began cutting interest rates from a two-decade high in September, pivoting from focusing on tackling inflation to supporting the labor market.

But recent figures have shown a stubbornness of inflation in some sectors of the economy, even as the overall figure has continued on its downward trajectory.

"With the US economy remaining strong, moving the policy rate down too quickly, in my view, would carry the risk of stoking demand unnecessarily and potentially reigniting inflationary pressures," Fed Governor Michelle Bowman told a conference in Florida, according to prepared remarks.

"Progress seems to have stalled in recent months," she continued, adding that the Fed should pursue a "cautious approach" on rate cuts going forward.

Back in September, Fed officials penciled in an additional quarter percentage-point of cuts before the end of the year.

But over the past week, futures traders have sharply dialed back their expectations of a rate cut at the December Fed meeting, according to data from CME Group.

They now assign a probability of around 60 percent that the Fed will lower rates by a quarter point, to between 4.25 and 4.50 percent, down from around 80 percent last week.

A.Lewis--MC-UK