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Two senior Federal Reserve policymakers pushed financial markets away from expectations of an interest rate increase at the central bank’s late October meeting. Their message was that officials need more economic evidence before deciding the next move for monetary policy.

Federal Reserve Bank of New York President John Williams delivered the pivotal signal during a Tuesday appearance at the University at Buffalo. Williams also serves as vice chair of the Federal Open Market Committee, the central bank panel responsible for setting rates.

“There is no need for urgency” on changing the current setting of monetary policy, Williams said. His comments helped erase expectations that the Fed would raise rates during the FOMC meeting scheduled for October 27 and 28.

Federal Reserve Vice Chair Philip Jefferson reinforced that view on Thursday. His remarks further cemented the change in market sentiment and strengthened expectations that policymakers would hold rates steady in October.

“Any future adjustments in policy should be determined by carefully examining trends in the data, the evolving outlook, and the balance of risks,” Jefferson said in remarks prepared for the Darden School of Business at the University of Virginia.

Jefferson said markets are “reassessing” the outlook as bond market yields rise. “My colleagues and I will need to come to our own judgment, which may take more time,” he said.

“With more data in hand, such trends may lend themselves to better discernment, as may the appropriate stance of monetary policy,” Jefferson added. The message pointed toward patience rather than another immediate increase.

Global brokerages now largely expect the Fed to raise rates only once more this year, with that move coming in December instead of October. Markets see the Fed holding steady in October and increasing rates at the December 8 and 9 FOMC meeting.

Evercore ISI analysts said Jefferson “has confirmed the message from NY Fed President Williams: the Fed does not expect to deliver a back-to-back rate hike at its coming October meeting and will take more time to consider evolving economic conditions.”

“We think the joint message from Jefferson and Williams is authoritative,” the Evercore analysts said. They pointed to an environment in which Fed Chairman Kevin Warsh has provided little, if any, guidance about the direction of interest rates.

SGH Macro Chief US economist Tim Duy said Williams needed to speak with unusual clarity because market expectations for rate increases were getting away from the Fed. Duy told clients that the development reflected the absence of forward guidance from the Fed’s leader.

The officials spoke after the Fed increased its interest rate target by a quarter percentage point at its mid September policy meeting. That move brought the target range to between 3.75% and 4%, while official forecasts indicated one more increase this year.

Persistent inflation had led investors to expect more rate increases than officials projected, including a strong likelihood of action in late October. The latest comments from Williams and Jefferson significantly weakened that view.

Minneapolis Fed President Neel Kashkari also indicated that he was willing to wait before deciding when rates should rise again. “I'm open-minded” about the Fed’s next steps, Kashkari told Reuters, adding, “I don't have a strong view” on whether the next increase should occur at the end of the month.

Kashkari’s current forecast includes one more increase this year and another next year. He also said the economy had performed better than he expected since the September meeting, even as he raised the possibility that rates may ultimately need to move higher.

“If the economy proves to just be incredibly resilient and inflation therefore is probably stickier than I appreciate, then policy could need to go higher yet than I'm anticipating at this moment,” Kashkari said. He also observed that “policy is probably not particularly restrictive right now.”

Williams, Jefferson and Kashkari expect inflation to ease over time, although they remain cautious about the speed of that decline. Jefferson expects inflation to stay “elevated” in the near term before moving toward the Fed’s 2% goal.

Jefferson said risks to his inflation forecast remain tilted upward because of recent geopolitical developments and stronger aggregate demand. The next major data release facing officials is the September jobs report, scheduled for Friday.

Recent hiring data has shown stability, giving Fed officials room to focus rate policy on cooling inflation. That makes it unlikely that the coming employment figures will again rewrite the outlook for interest rates.

DISCLAIMER: GoldInvestors.news is not a registered investment, legal or tax advisor or broker/dealer. All investment/financial opinions expressed by GoldInvestors.news are from the personal research and experience of the owner of the site and are intended as educational material. Although best efforts are made to ensure that all information is accurate and up to date, occasionally unintended errors and misprints may occur.