By Steven K. Beckner
(MaceNews) – Two Federal Reserve Bank presidents who had opposed the Fed’s mid-week interest rate cut, strongly defended their no votes on Friday while two other Fed presidents who will be voting on monetary policy next year gave conflicting indications on whether they will support moving rates lower.
Broadly speaking, the remarks served to reinforce the impression that the Fed’s rate-setting Federal Open Market Committee intends to pause before cutting the federal funds rate again after lowering its policy rate by 25 basis points on Wednesday.
The FOMC’s third straight rate cut left the funds rate in a target range of 3.5% to 3.75% (a median 3.6%) — still 60 basis points above the FOMC’s estimate of the “longer run” “neutral rate.”
But Chair Jerome Powell said the cumulative 175 basis points of monetary easing the Fed has done since last September has left the funds rate “within a range of plausible estimates of neutral, and leave us well-positioned to determine the extent and timing of additional adjustments to our policy raced based on incoming data, had balance outlook and summary risks.”
Powell said the Fed can now “wait and see” how the economy performs relative to its
dual mandate goals. In their revised Summary of Economic Projections, the 19 FOMC participants anticipated the funds rate will end 2026 at 3.4%.
There were a rare three dissents, with Fed Governor Stephen Miran arguing for a 50 basis point cut while Chicago Fed President Austan Goolsbee and Kansas City Federal Reserve Bank President Jeffrey Schmid preferred keeping rates unchanged.
In a statement issued by his Bank Friday, Schmid contended Wednesday’s rate cut was unjustified.
“(B)ased on the data we do have and conversations with contacts in my district, I have not fundamentally changed my views on the economy relative to October,” he wrote. “Inflation remains too high, the economy shows continued momentum, and the labor market—though cooling—remains largely in balance.”
Schmid maintained that another rate cut was unneeded, because “the current stance of monetary policy is only modestly, if at all, restrictive.”
Highlighting his concerns about inflation, Schmid said conversations he’s had around his vast 10th district have led him to fear “we are at risk of moving away from a situation where, to quote former Chair Alan Greenspan, ‘inflation is so low and stable over time that it does not materially enter into the decisions of households and firms.’”
“Right now, I see an economy that is showing momentum and inflation that is too hot, suggesting that policy is not overly restrictive, he added.
With Chicago Fed President Austan Goolsbee, his dissent in favor of keeping rates unchanged seems to have been more a matter of time. He sees room for rates to go lower but thinks the FOMC should go slow for now.
“I’m pretty optimistic that for 2026 rates will be able to be a fair bit lower than they are today,” he told CNBC, “But I’ve just been uncomfortable front-loading too many rate cuts and assuming that what we’ve seen in inflation will be transitory.”
Goolsbee also expressed wariness about inflation in the absence of federal data due to the 43-day government shutdown.
“There’s no way around we’ve been four and a half years above the inflation target, and the last six months have shown no progress,” Goolsbee said. “Right before the lights went out [for the government shutdown], you saw a couple of relatively disturbing readings on services inflation. I just want to make sure that if we believe that this is transitory, let’s not just put all our eggs in.”
“While I voted to lower rates at the September and October meetings, I believe we should have waited to get more data, especially about inflation, before lowering rates further,” he said.
More ambivalent, albeit cautious, views came from two Federal Reserve Bank Presidents who will be rotating into voting position in January.
Philadelphia Fed President Anna Paulson, who took office in July, stressed the need to maintain the Fed’s “credibility” as an inflation fighter and suggested policymakers should be guarded until it’s more certain that tariff hikes are not imparting as persistent upward pressure on prices..
“Credibility is important right now as we consider how to deal with the potential inflationary impact of tariffs,” she told the Delaware State Chamber of Commerce. “If I am wrong, and tariffs do end up producing sustained inflation, credibility means that the public is confident that we will recognize this and adjust policy accordingly. That credibility gives us room to take out some insurance against bad labor market outcomes without risking too much on the inflation front.”
Paulson expressed somewhat greater concern about the cooling labor market. “On net, I am still a little more concerned about labor market weakness than about upside risks to inflation. That’s partly because I see a decent chance that inflation will come down as we go through next year. I attribute most of the increases in goods inflation in 2025 to tariffs and I expect the bulk of these effects to disappear by middle of next year.”
Paulson said, “labor supply has been coming down at the same time that labor demand has been cooling, and this has kept the labor market roughly in balance and prevented the unemployment rate from going up more.”
“On net, though, demand for workers has fallen a little faster than supply, leaving the unemployment rate a little higher,” she added.
Paulson went on to suggest she will be a careful and balanced policymaker as she becomes a voter next year.
“(W)e have seen solid, but slowing, growth and a less dynamic labor market,” she said. “And inflation that was 2.8 percent in September of last year and was still 2.8 percent in September of this year…..”
“With inflation too high and the labor market bending, but not breaking, that means balancing the risk that inflation stays too high against the risk that employment deteriorates as we manage the process of getting to our goals,” she continued. “By lowering rates 75 basis points over the last three meetings, we’ve taken out some insurance against further labor market deterioration.”
Finally, Cleveland Federal Reserve Bank Fed President Beth Hammack lived up to her more hawkish reputation Friday by saying she would prefer ”slightly more restrictive” monetary policy.
She said the funds rate is already “right around a neutral” level but needs to be “slightly more restrictive” to curb inflation.
Powell said Wednesday that a rate hike is not “anybody’s base case at this point,” but Hammack was willing to entertain the possibility at an event in Cincinnati.
If inflation stays elevated “for a bit longer, then that’s going to say to me, maybe we need to look at where we are from a policy perspective. Maybe we’re not restrictive enough, assuming the labor market holds up,” she said.
But “if the labor market weakens further, then it just gets to be back in this challenging time’ of having to balance risks to the two sides of the Fed’s dual mandate, she added.