Fed Chair Powell wants to give the Fed control of the outcome, not the markets: Roger Ferguson

Core Viewpoint - The Federal Reserve cut rates by 25 basis points, but there is significant uncertainty regarding future rate cuts, particularly for the December meeting, as indicated by differing views among committee members [1][5][6]. Group 1: Federal Reserve's Rate Decision - The Fed's decision to cut rates was accompanied by a notable increase in Treasury yields following comments from Fed Chair Jay Powell, highlighting the lack of consensus on future policy direction [1]. - Powell emphasized that a further reduction in the policy rate in December is not guaranteed, indicating a more cautious approach [1][6]. - The presence of dissenting votes during the meeting reflects the divided opinions within the committee regarding the appropriate course of action [5][6]. Group 2: Market Reactions and Expectations - The market appeared surprised by the Fed's stance, despite previous indications of a split within the committee, suggesting that market participants may not have been fully attentive to prior communications [3][6]. - There is a concern that the market has been overly optimistic about future rate cuts, with expectations for multiple cuts next year [6][7]. Group 3: Economic Conditions and Risks - There are emerging concerns about mild stagflation, characterized by a weakening labor market and persistent inflation around 3% year-over-year [8][9]. - The Fed is facing challenges in addressing labor market issues, particularly if the decline in labor force participation is driven by supply-side factors, which monetary policy may not effectively influence [10][14]. - The uncertainty surrounding inflation and employment dynamics complicates the Fed's decision-making process, as they navigate the risks of stagflation [11][15]. Group 4: Technology and Investment Trends - The Fed's ability to influence capital expenditures in sectors like artificial intelligence is limited, as these investments are driven by expectations of high returns rather than interest rate changes [16]. - The central bank may find itself constrained in addressing potential bubbles in technology investments, focusing instead on monitoring macroeconomic data for signs of impact [16].