After the retail data "exploded," there are still Federal Reserve officials "dovish"

Zhitong Finance learned that data released on Friday indicated that the U.S. retail sales, known for its "terrifying data" title, still point to resilient consumer spending in the U.S. The retail data for September was unexpectedly revised upward, and retail sales in October continued to grow month-on-month beyond expectations; subsequently, the interest rate market significantly cooled its expectations for the Federal Reserve's rate cuts in December and 2025. Nevertheless, some Federal Reserve officials expressed confidence in inflation returning to target on Friday.

In the U.S. Treasury market, traders have begun to price in "re-inflation" expectations, anticipating that persistent inflation and a series of policies following Trump's administration—including tax cuts, deporting immigrants, and increasing tariffs under the "MAGA policies"—could make "re-inflation" a reality. The yield on 10-year U.S. Treasuries could even approach 5%, thereby affecting the volatility of risk assets such as stocks.

The "CME FedWatch Tool" shows that after the release of rising CPI, PPI, and strong retail sales data, the probability of the Federal Reserve pausing rate cuts in December rose from less than 30% to nearly 40%, with bets indicating that the Fed may only cut rates twice next year, rather than the four cuts indicated before this week's inflation and retail data release.

Nonetheless, some Federal Reserve officials spoke on Friday expressing confidence in inflation returning to target. Additionally, some officials expect a rate cut in December, followed by a further one percentage point cut next year—essentially four standard cuts of 25 basis points.

Boston Fed President Susan Collins stated that she expects inflation to return to the central bank's target of 2%, although data may fluctuate month by month. On Friday, Collins told reporters, "I see a strong, sustainable trajectory back to 2%. There may be imbalances, and bumps may continue to occur."

Collins reiterated her belief that there will be no new price pressures, and housing inflation, which drives core prices up, may take some time to dissipate. Earlier on Friday, Collins stated that monetary policy remains restrictive, and a rate cut in December is still possible, but the final decision will be based on data.

Chicago Fed President Austan Goolsbee, in an interview with foreign media, stated that he expects the Federal Reserve to cut rates by another 25 basis points this year and further cut by one percentage point next year Goolsbee mentioned that according to the dot plot forecast from September, the Federal Reserve's policy rate is expected to drop to 4.4% by the end of this year and further to 3.4% by the end of next year. He believes that this rate cut path aligns with the expectations of the 19 policymakers at the Federal Reserve and may create a more favorable monetary policy environment for economic growth.

Goolsbee stated that as long as the inflation rate continues to decline towards the central bank's target of 2%, interest rates will "significantly" decrease in the next 12-18 months. He added that interest rates are still restrictive, so there is still room to lower borrowing costs to a more neutral level. Goolsbee also noted that the current inflation rate is "too high" to be sustained at this level in the long term; however, he warned against interpreting strong economic growth as a sign of overheating, given last year's productivity gains.

Overall, Federal Reserve policymakers are currently not in a hurry to lower borrowing costs. Several Fed officials, including Powell, still advocate for a cautious and gradual approach to further rate cuts, considering the strength of the economy