Interest Rates Could Still Go Higher, Fed Official Cautions a Rallying Wall Street

The market may have decided that the Federal Reserve is done raising interest rates, but the president of the Fed's Minneapolis bank has not.

Neel Kashkari on Friday said a weak jobs report isn't enough to call the Fed's fight against inflation over.

It “gives us more comfort that the economy is moving back into balance, but I don’t want to overreact to one job report,” he said an Economic Club of Minnesota event.

The Labor Department reported that U.S. employers added 150,000 jobs for the month, compared to the 170,000 jobs that economists had expected, according to consensus estimates from Dow Jones. It was also far less than the revised 297,000 jobs in September.

The market reacted positively with the Dow Jones Industrial Average closing up 222 points, or 0.66%, and the yield on the 10-year Treasury dropping below 4.6% after hitting a 16-year high of 5% earlier in the week.

Some Fed officials have said the spike in the 10-Year Treasury yield, which serves as a baseline interest rate for financial markets and consumer loans, would eliminate the need for the Fed to raise its rates further.

The Fed on Wednesday decided to hold its key interest rate at a 22-year high — where policymakers have let it stand since July. The central bank's Federal Open Market Committee has raised rates 11 times since March 2022 to 5.25% to 5.5%.

Markets are betting on a more than 95% probability that the Fed will not raise rates in December and a nearly 90% change of no rate change in January, according the the CME FedWatch Tool, which is based on Fed Funds futures trading.

"The soft jobs report makes the Fed more likely to end the rate hike cycle here and pivot to rate cuts in 2024," said Bill Adams, Chief Economist for Comerica Bank in Dallas.

Kashkari said it is uncertain what has been driving bond yields. "Right now, there's a lot of focus on the Treasury yield curve and what's driving some of the moves in the yield curve," he said.

Also on Friday, another Fed official advocated patience when deciding the next move on interest rates.

“Today, my outlook is that we’re going to stay on that slow and steady,” said Federal Reserve Bank of Atlanta President Raphael Bostic on Bloomberg TV. He also said Fed officials “are close to our target without seeing a recession.”