Another rate cut? Not so fast, say Fed leaders
Three top U.S. Federal Reserve officials pushed back against expectations of another interest rate cut in December, warning that persistent inflation still poses risks despite a weakening labor market.
Dallas Fed President Lorie Logan, Cleveland’s Beth Hammack, and Kansas City’s Jeff Schmid each expressed reservations following this week’s decision to lower the benchmark interest rate by 25 basis points to a range of 3.75%–4%.
“I’d find it difficult to cut rates again in December unless there is clear evidence that inflation will fall faster than expected or that the labor market will cool more rapidly,” Logan said in a speech delivered at a Dallas conference.
Schmid, who dissented in this week’s decision, said the U.S. economy continues to show strong momentum and that inflation remains “too high.” Hammack, meanwhile, indicated that the latest rate move brings the federal funds rate close to her estimate of the neutral level and cautioned against loosening policy too quickly.
The Fed’s Chair Jerome Powell also flagged growing caution within the central bank. “There’s a growing chorus now of feeling like maybe this is where we should at least wait a cycle,” he said Wednesday, suggesting a pause could be more prudent than further cuts.
Markets had largely priced in another cut by year-end, but bond yields rose and equities pared gains following the hawkish signals.
Fed Governor Christopher Waller remains supportive of a December cut, citing labor market weakness as a key concern. He is reportedly among the candidates considered to replace Powell when his term expires in May.
The Fed also announced it will end its balance sheet runoff in December, with Logan noting the move should help ease recent funding strains in money markets.
Is the U.S. economy strong enough to skip another rate cut? Let us know your thoughts.
