Divisions within the Federal Reserve intensified on Friday as officials clashed over interest rate policy, including two members set to gain voting rights in 2026, signaling prolonged debates that will shape the central bank's direction in the coming year. Three policymakers emphasized inflation risks, though one suggested only a temporary pause in rate cuts to confirm easing price pressures, while two others highlighted growing labor market vulnerabilities. These remarks mark the first public statements since Wednesday's decision to lower benchmark rates by 25 basis points for the third consecutive meeting amid rising unemployment.
The dissenting votes against the move revealed mounting controversy over the easing cycle as inflation persists. Projections showed officials' median forecast anticipates just one rate cut in 2026. "A segment of the Committee prefers greater caution, wanting more inflation and jobs data," noted Evercore ISI senior economist Marco Casiraghi, adding that with a new Fed chair expected to push for lower rates, "2026's appropriate number of cuts will involve considerable negotiation."
Chicago Fed President Austan Goolsbee and Kansas City Fed chief Jeff Schmid—both 2026 voters—explained their Wednesday dissents. Goolsbee, voting against policy for the first time since 2023, cited "concerning" pre-shutdown inflation data and delayed economic reports as reasons to await more information before further cuts. He projected more 2026 reductions than most colleagues, calling himself "among the most optimistic" on rate decline potential. Schmid was more definitive, stating current policy "is at best only slightly restrictive" given persistent inflation and economic momentum.
As Chicago and Kansas City Fed presidents rotate off the voting roster in 2026, their successors staked opposing positions Friday—Cleveland's Beth Hammack urged "slightly more restrictive" policy to pressure inflation, while Philadelphia's Anna Paulson (a 2025 voter) prioritized labor market risks, predicting likely 2024 disinflation. San Francisco Fed President Mary Daly, a non-voter, defended this week's cut as necessary to avoid "undue harm" from overtightening that could saddle households with both high inflation and weak employment.
Notably, six of 19 policymakers preferred holding rates steady through 2025 in Wednesday's projections. With only two formal dissents among 12 current voters, analysts interpreted the elevated rate forecasts as "silent objections" to the easing path. The rift sets up a pivotal policy tug-of-war as leadership transitions loom in 2026.
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