Three Federal Reserve officials said they did not support the decision to cut interest rates this week, confirming Federal Reserve Chair Jerome Powell’s warning on Wednesday that another rate cut in December is far from guaranteed.
Dallas Fed President Lorie Logan and Cleveland Fed President Loretta Mester said on Friday that they preferred to keep interest rates unchanged.
Earlier, Kansas City Fed President Jeff Schmid had issued a statement earlier that day explaining his opposition to the rate cut on Wednesday. Both made the remarks at a meeting in Dallas.
The remarks by Logan, Hamak and Schmid kicked off a fierce debate that is likely to unfold over the next six weeks before the central bank’s next policy meeting in December. One side of officials believes that further easing of policy is needed to support the labor market, while the other side is more concerned about inflation.
“Unless there is clear evidence that inflation will fall faster than expected or that the labor market will cool more quickly, I find it hard to cut rates again in December,” Logan said in prepared remarks for a conference speech.
Fed officials cut the benchmark interest rate by 0.25 percentage points for the second consecutive month this week, following a sharp slowdown in the job market over the summer that raised concerns about the labor market. Powell told reporters after Wednesday’s decision that another rate cut in December is “not a done deal” and noted that “more and more people” think it might be time to pause rate hikes.
However, some officials are open to the possibility of a rate cut in December.
Mary Daly, president of the Federal Reserve Bank of San Francisco, said the US central bank should keep an open mind about the possibility of another rate cut at its next policy meeting in December.
Daly said in a speech at the Palm Beach Forum Club in West Palm Beach, Florida on Monday that she agreed with the Federal Reserve’s decision last week to cut the benchmark interest rate by 0.25 percentage points for the second consecutive month, calling it “appropriate”.
The president of the Federal Reserve Bank of San Francisco believes that the Federal Reserve is currently facing a trade-off between two tasks. On the one hand, it needs to continue to curb inflation, as the current inflation rate is still above the target level. But on the other hand, it needs to support the labor market so that people can catch up after their purchasing power was eroded by high inflation in recent years.
Federal Reserve Governor Stephen Milan stated that monetary policy will remain tight and he will continue to advocate for significant interest rate cuts.
“The Fed’s policy is too tight. The neutral policy rate is far below the current level,” Milan said in an interview with Bloomberg Television on Monday. “Given that my inflation expectations are more optimistic than those of some other committee members, I don’t see a reason to maintain such a tight policy.”
Milan has repeatedly called for a more accommodative monetary policy and opposed the decision of policymakers to cut the Fed’s policy rate by 0.25 percentage points in September and October, instead advocating a reduction of 0.5 percentage points.
Christopher Waller, a member of the Federal Reserve Board, said in an interview on Fox Business on Friday that he “still advocates” for a rate cut at the December meeting and argued that “our biggest concern right now is the labor market.”
According to the data from the interest rate futures market linked to the Federal Reserve’s benchmark rate, investors still believe that the possibility of a rate cut in December is greater than 50%.
Matthew Luzzetti, chief U.S. economist at Deutsche Bank Securities, said, “I think Powell may face more resistance to cutting rates in December than to pausing hikes.” He added, “This is one of the reasons why Powell has been so hawkish, but as more Fed officials make public comments, we will learn more in the next one to two weeks.”
