Increased uncertainty about interest rate cuts intensifies as Federal Reserve officials urge cautious action.

Several Fed officials reiterated on Wednesday that they are uncertain about how far the Fed needs to cut interest rates, highlighting the difficulties policymakers face in trying to determine the appropriate environment to maintain stable economic growth. Kansas City Fed President Schmid said, "While it is time to start easing monetary policy restrictions now, the extent to which interest rates will further decline, or where they may ultimately settle, remains to be seen." Comments like Schmid's are becoming a mantra for Fed officials. Many believe that the neutral interest rate - the level of interest rate that neither stimulates nor suppresses economic growth - may have risen since the pandemic. However, no one is confident about its position. Dallas Fed President Logan said in another speech at the same meeting, "It is important that uncertainty about the neutral rate has also increased, perhaps because structural changes in the economy have only recently appeared and need time for a full evaluation." This uncertainty is putting pressure on Fed officials, as cutting interest rates below the neutral level could potentially reignite inflation. This may make them more cautious and may pause the rate-cutting cycle. Logan stated that the "widely referenced model" sets the neutral federal funds rate between 2.74% and 4.6%. The midpoint of the Fed policy rate is currently at the top end of this range. She added that she believes more rate cuts are on the way, but the Fed should "proceed with caution" at this point. After the CPI report for October showed that inflation was in line with economists' expectations, Fed speakers on Wednesday generally expressed confidence that inflation is still trending towards the central bank's 2% target. Minneapolis Fed President Kashkari said in an interview, "Right now, I think inflation is moving in the right direction. I am confident in that, but we need to wait. We have a month or six weeks to analyze the data before making any decisions." Kashkari said on Tuesday that unexpected increases in inflation data from now until the Fed's December meeting may make him pause supporting another 25 basis point rate cut. The Fed cut the benchmark rate by 50 basis points in September and then cut by 25 basis points this month. Consumer price data released on Wednesday showed that the core CPI index, excluding food and energy costs, rose by 0.3% for the third consecutive month. Overall CPI increased by 2.6% from a year earlier, marking the first year-over-year increase since March this year. With the new data, investors have moderately increased their bets on another rate cut at the Fed's December meeting. St. Louis Fed President Mester said in a speech that the Fed's inflation and employment targets are within sight, but he emphasized that officials should maintain a "moderately restrictive" policy when price increases are still above the Fed's 2% target. He said, "In my base case scenario and based on current information, I expect inflation to move closer to 2% in the medium term." However, he added that officials should "assess upcoming economic data carefully and patiently" when considering further rate cuts. During the Q&A session after the speech, Mester said recent information suggests that inflation may be flatlining on the downside, with the risk of rising. He said that the data indicates the US economy is "stronger than before, perhaps substantially stronger," and several inflation indicators "have edged up". However, he said the central bank's policy positioning is good.