Fed’s Mixed Signals From Minutes Raise Doubts About Rate Cuts

Thank you, Reena. It is an honor to be back at Georgetown and at the Psaros Center. I have spent a significant amount of time on and around this campus, including when I served as a congressional intern early in my career. Perhaps in fate's way of foreshadowing, one of the topics I researched that summer was the Glass-Steagall Act. Turns out that it was handy to learn about at a young age. Financial stability is a focal point of my attention at the Board of Governors, since I serve as chair of the Board's Committee on Financial Stability. Allow me to start by saying that the financial system remains resilient, supported by strong balance sheets among households and businesses and high capital levels across the banking system. Earlier this month, the Fed issued the most recent version of our semiannual Financial Stability Report. That report affirmed the system is resilient, while also noting some of the same risks and vulnerabilities we have seen in recent reports. My remarks will center on three areas of vulnerabilities: asset valuations; the structural shift in lending to private companies, away from traditional bank loans and toward private credit arrangements; and the growing role of hedge funds as investors in the U.S. Treasury market. Finally, I will turn to a longer-term issue—the potential for the use of generative artificial intelligence (AI) in financial market trading that could both increase and decrease financial stability. Let's begin by putting financial-system vulnerabilities into context. The Federal Reserve promotes financial stability in order to support the achievement of its dual mandate of promoting maximum employment and price stability. That is, achieving maximum employment and price stability depends on a stable financial system. We know from history, whether from the distant past—the Great Depression—or from the recent past—the Great Financial Crisis or the G Fed's Cook: I see an increased likelihood of outsized asset price declines, though she says not a risk to the financial system. Fed's Cook: Hedge fund trading strategies in treasuries are a potential risk to market liquidity. Fed's Cook: Generative artificial intelligence use in trading raises concerns, could have benefits, we must watch it carefully.

Fed's Hammack: Inflation expectations have been contained, and that's good. Fed's Hammack: I see some softening in demand related to inflation. Fed's Hammack: Pressure from inflation is still really significant. Fed's Hammack: I had been anticipating a cooling in jobs, and the data is confirming that. Fed's Hammack: Inflation is still too high, and is trending in the wrong direction. Fed's Hammack: We need to keep monetary policy somewhat restrictive due to inflation. Fed's Hammack: The jobs data looked a bit mixed. Fed's Hammack: The jobs data highlighted challenges faced by monetary policy. Fed's Hammack: Jobs report is a bit stale, but is in line with expectations - CNBC. Fed's Hammack: Anecdotal info still points to a low-hire, low-fire environment. Fed's Hammack: High inflation is still a real issue for the economy. Fed's Hammack: I see some softening in demand related to inflation. Fed's Hammack: In housing, input costs are a real issue. Fed's Hammack: I expect to see fluctuations in money markets. Fed's Hammack: I am looking a lot at private credit. Fed's Hammack: We are right around the neutral rate.

*FED'S GOOLSBEE SAYS INFLATION SEEMS STALLED, MAYBE MOVING UP FED’S GOOLSBEE SAYS THE 2 PERCENT INFLATION TARGET STANDS AND 3 PERCENT INFLATION IS TOO HIGH FED'S GOOLSBEE: EMPLOYMENT IS NEAR FULL EMPLOYMENT. ... Fed’s Goolsbee: Uneasy Frontloading Rate Cuts And Counting On Transitory Inflation - Official Data Is Big Mess, Because The Lights Went Out

Fed’s Goolsbee: While In Dark On Official Data I Was More Paranoid About Inflation Side, Since There's Less Data Fed's Goolsbee: There is a notable slowdown in the number of jobs created. GOOLSBEE: DUBIOUS THAT SLOWDOWN IN PAYROLLS POINTS TO A RECESSION