Market Insights

After years of steady rate hikes, the Federal Reserve may be signaling a change of course.

The U.S. central bank’s top two policymakers made potentially “dovish” statements in the last three days. That means they may favor less aggressive interest-rate increases going into their next meeting on December 19.

“If you look down the road you see challenges ahead,” Fed Chairman Jerome Powell said at a conference on Wednesday. “We have to be thinking about how much further to raise rates and the pace at which we will raise rates.”

He added that policymakers will “be looking really carefully at how markets and the economy, and business contacts are reacting.” He also said the Fed will make sure rates are “appropriate” in order to “extend the recovery.”

In other words Powell seemed to be saying, “we’re less eager to raise and will stop if the economy is at risk.”

This morning, his second-in-command, Vice Chairman Richard Clarida, seemed to reinforce that message in an interview on CNBC: “If you’re in a dark room… you want to go a little bit slow so you don’t stub your toe. I think that data dependence makes sense right here.”

This kind of language seems to represent a change from October, when a string of Fed speakers sounded cocksure about more rate hikes. Those included not only Powell and Clarida, but also John Williams, Loretta Mester, Raphael Bostic and Robert Kaplan.

The potentially dovish turn comes at a time when most economic data remains strong. However price action in the stock market — with out-performance in safe-havens like real-estate investment trusts — sends a potentially different signal.

Fed watchers could now grow more interested in the latest economic reports like jobless claims, viewing weakness as a dovish indication. Other events to watch include the release of minutes from the last meeting on November 29 and the Beige Book survey on December 5.

In conclusion, it’s still early. But some big shifts may be taking place at the Fed.