Divisions within the Federal Reserve over the next policy steps have become increasingly evident, as several regional Fed presidents delivered speeches on Thursday, expressing differing views on inflation pressures, labor market resilience, and whether interest rates should be lowered further. Following the latest rate cut, the Fed's benchmark rate now stands in the 3.75% to 4% range, but policymakers lack consensus on whether this range remains "restrictive."
Cleveland Fed President Loretta Mester argued that the Fed should keep rates steady to maintain pressure on inflation and bring price growth back to the 2% target. She noted that despite some concerns in the labor market, elevated inflation remains stubborn, particularly impacting low- and middle-income households. Mester described the current rate level as "barely restrictive" and suggested that the neutral rate might be higher than most policymakers estimate. "To keep policy restrictive, rates need to stay where they are," she said. She expects inflation pressures to persist through year-end and possibly into early next year, citing businesses passing tariff-related cost increases to consumers as a factor that could prolong price pressures.
Echoing Mester's cautious stance, St. Louis Fed President James Bullard also urged prudence in further rate cuts. While he supported the recent cuts as beneficial for the labor market, he emphasized that inflation remains above the Fed's target, requiring policy to stay somewhat restrictive. "We must proceed carefully because there’s limited room for further easing—excessive cuts could make monetary policy too accommodative," Bullard said. He described current policy as "somewhere between slightly tight and neutral," balancing inflation control with moderate employment support. Earlier this week, he projected a "strong rebound" in the U.S. economy by Q1 2025.
However, investors remain uncertain about future policy direction. According to interest rate futures pricing, the likelihood of another rate cut at the Fed's December 9–10 meeting is currently "close to a coin toss."
In contrast, Minneapolis Fed President Neel Kashkari expressed reservations about the October rate cut itself. In an interview, he stated that given the economy's continued strength, he did not support the reduction at the time. He remains undecided on his vote for next month's meeting, saying, "Depending on the data, I could support either a cut or holding steady—we need more time to assess."
Comments