The asset price is likely to fall, Cook says
Cook, Hammack highlight the risks to financial stability from private loans and hedge funds
The Fed’s next meeting is Dec. 9-10, with traders not expecting any rate cuts
By Ann Saphir and Michael S. Derby
Nov 20 (Reuters) – Concerns about financial market stability, including the potential for a sharp decline in asset prices, are emerging as a new theme for Federal Reserve officials as they debate when and even whether to cut interest rates further.
Federal Reserve Governor Lisa Cook did not offer a specific view on short-term interest rate policy at Georgetown University on Thursday.
But it highlighted a number of risks to the financial system, including booming private credit markets, hedge fund trading in the Treasury market and the introduction of generative artificial intelligence into machine trading.
Cook also indicated that she would not be surprised by a collapse in historically elevated asset prices — which have helped support overall consumer spending and the broader U.S. economy — although such a decline in itself would not signal financial market instability. “Currently, my impression is that there is an increased likelihood of asset price declines.”
Speaking at a separate event earlier, Cleveland Fed President Beth Hammack reiterated her opposition to further interest rate cuts because inflation remains too high and indicated she sees easy financial conditions as another argument against rate cuts.
She, like Cook, said she felt it
The remarks reflect some of the concerns of Fed policymakers more broadly, as highlighted in minutes from the Fed’s October meeting released on Wednesday.
“Some participants commented on tight asset valuations in financial markets, with several highlighting the possibility of, particularly in the event of a sudden reassessment of the possibilities of AI-related technology,” the minutes said.
The debate among policymakers has largely centered on whether further rate cuts could send inflation, which has hovered above the Fed’s 2% target for years, further in the wrong direction, or whether the more pressing concern is a cooling labor market that requires further Fed policy easing.
Deciding what to do at the Fed’s upcoming Dec. 9-10 meeting has been further complicated by the government shutdown, which has deprived policymakers of critical data that could boost the economy.
The Bureau of Labor Statistics said Thursday that job gains in September were more than double what economists had expected, even as the unemployment rate rose to 4.4%; the agency won’t release another comprehensive report on the employment situation until a week after the Fed’s December meeting.
After economic data traders stuck to their earlier bets that without data showing a decisive collapse in the labor market, the Fed would most likely skip cutting rates in December before making another quarter-percentage-point cut in January. (Reporting by Ann Saphir; Editing by Paul Simao and Andrea Ricci)
