Fed officials split on pace of rate cuts, fueling uncertainty for mortgage markets
The Federal Reserve’s internal debate over interest rate cuts intensified this week, with policymakers airing sharply divergent views on the path ahead—raising new questions for mortgage lenders and borrowers navigating a volatile rate environment.
Chicago Fed president Austan Goolsbee and Kansas City Fed president Jeff Schmid both voiced caution about further aggressive rate reductions, citing persistent inflation concerns.
“If we are in this environment where inflation's been above the 2% target for almost five years in a row now, and it's going the wrong way, just counting on the inflation to be transitory makes me uneasy,” Goolsbee said Thursday in Grand Rapids, Michigan.
He added that evidence of stagflationary shocks, such as the combination of stagnant growth and rising prices, would be “the worst scenario” for the Fed as it tries to balance its dual mandate.
Schmid, who voted on last week’s quarter-point cut, described the move as “a reasonable risk-management strategy as the Fed balances its inflation objective with some heightened concern over the health of the labor market.”
However, he warned, “my view is that inflation remains too high while the labor market, though cooling, still remains largely in balance. I view the current stance of policy as only slightly restrictive, which I think is the right place to be.”
Schmid said he would take a “data-dependent approach to any further adjustments in the policy rate.”
Fed chair Jerome Powell was also careful in his comments after Fed's announcement last week, and members Alberto Musalem and Raphael Bostic have questioned whether more cuts are necessary.
Calls for deeper cuts spark internal pushback
On the other hand, Fed governor Stephen Miran has claimed the central bank needs to slash interest rates further, arguing its benchmark rate is nearly two percentage points too high.
“The Federal Reserve has been entrusted with the important goal of promoting price stability for the good of all American households and businesses, and I am committed to bringing inflation sustainably back to 2%,” he said.
“However, leaving policy restrictive by such a large degree brings significant risks for the Fed’s employment mandate.”
Miran signaled on the Fed’s “dot plot”—which shows policymakers’ rate forecasts—that he expects another 125 basis points of cuts in 2025.
Mortgage market faces uncertainty as Fed split widens
The Fed’s policy split comes as mortgage professionals face a landscape shaped by both inflation and labor market uncertainty. While some policymakers see room for further cuts if inflation cools and employment stabilizes, others warn that moving too fast could reignite price pressures or undermine fragile economic gains.
San Francisco Fed president Mary Daly and Vice Chair Michelle Bowman have also signaled openness to more cuts, but only if data supports it.
The central bank’s next moves will hinge on incoming data—and on how policymakers ultimately weigh the risks of inflation against those of a cooling labor market.
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