– Goolsbee, Hammack, Cook All Uneasy About Moving Again Next Month
– Waller Strongly Supports December Rate Cut
By Steven K. Beckner
(MaceNews) – With the Federal Reserve’s last monetary policy meeting of the year just three weeks away, many Fed officials are exhibiting greater reluctance to continue interest rate reductions, while some continue to vocally support them..
Collectively, the latest comments serve to reinforce Chair Jerome Powell’s assertion late last month that a December rate cut is “not a foregone conclusion.” If anything the weight of official commentary seems to have swung to the “no” column.
Chicago Federal Reserve Bank President Austan Goolsbee, a voting member of the Fed’s policymaking Federal Open Market Committee, strongly suggested Thursday that he may not support another rate cut as soon as next month. He said the apparent “stalling” of progress against inflation due to tariff hikes, combined with the lack of good data on inflation because of the government shutdown have made him “uneasy” about “front-loading” more rate cuts.
Cleveland Fed President Beth Hammack, who will be voting on the FOMC next year, was more emphatic earlier Thursday, warning that further easing “risks prolonging this period of elevated inflation, and it could also encourage risk-taking in financial markets.”
New Philadelphia Fed President Anna Paulson, who will also be joining the FOMC voting ranks next year, said she is a little more concerrned about labor market weakness than above-target inflation, but said that after 50 basis points of easing she is approaching the December meeting “cautiously..”
Governor Lisa Cook avoided speaking directly on the subject of interest rates Thursday, but suggested she too might be wary of additional rate cuts in the near term when she warned against “financial system vulnerabilities” that could “constrain the Federal Reserve’s ability to attain its dual-mandate goals of maximum employment and price stability.”
In particular, Cook pointed to “elevated” asset valuations – the implication being that the FOMC might want to be cautious about easing that could push asset prices higher.
The comments came after the Labor Department belatedly reported a much larger than expected 119,000 September rise in non-farm payrolls, coupled with downward revisions to prior months and a one-tenth uptick in the unemployment rate to 4.4%. (Some October jobs data will be folded into the November employment report and released Dec. 16 – six days after the FOMC meeting).
Around the 12 Fed districts, an important two-way dialogue has been taking place, with Federal Reserve Banks taking anecdotal soundings on business conditions to supplement scarce statistical data, while regional bank presidents explain the Fed’s risk management calculations to their constituents.
The findings have been mixed, but on the whole officials have been relatively encouraged, finding some cooling of economic activity and labor market softening, along with hesitancy about household and business spending decisions, but few alarming rececessionary signs.
President Trump, meanwhile, renewed his attacks on Powell Wednesday, calling him “grossly incompetent” and saying he’d “love to fire his ass,” but for Treasury Secretary Scott Bessent “holding him back.”
After cutting the funds rate by 25 basis points on Sept. 17, the FOMC cut the policy rate another 25 on Oct. 29 to a target range of 3.75% to 4.0%. Miran dissented in favor of a 50 basis point cut, while Kansas City Fed President Jeffrey Schmid dissented because he wanted to leave rates unchanged.
At the same time, the FOMC announcing the discontinuation of “quantitative tightening,” as of Dec. 1, potentially allowing greater scope for longer term rates to decline.
At a median 3.9% in a target range of 3.75-4.0%, the funds rate is still 90 basis points above the FOMC’s estimated 3.0% “longer run” or “neutral” rate and hence considered somewhat “restrictive” by most Fed officials – “modestly restrictive” in Powell’s words, just “barely restrictive” in the mind of others, such as Hammack.
With inflation still running closer to 3% than to the 2% target, keeping the funds rate above neutral is considered “appropriate” by most.
In their last Summary of Economic Projections, published in September, the 19 FOMC participants projected another 25 basis points of monetary easing will be done at the Committee’s last meeting of 2025.
But Powell left that in doubt in his Oct. 29 press conference, saying a December 10 rate cut is “not a foregone conclusion, in fact, far from it,” because of “strongly differing views about how to proceed in December”
Minutes of the October meeting, released Wednesday, confirmed Powell’s characterization: “In discussing the near-term course of monetary policy, participants (including non-voters) expressed strongly differing views about what policy decision would most likely be appropriate at the Committee’s December meeting,”
The minutes say “many participants were in favor of lowering the target range for the federal funds rate at this meeting,” but “some supported such a decision but could have also supported maintaining the level of the target range, and several were against lowering the target range.”
“Those who preferred to keep the target range for the federal funds rate unchanged at this meeting expressed concern that progress toward the Committee’s inflation objective had stalled this year, as inflation readings increased, or that more confidence was needed that inflation was on a course toward the Committee’s 2% objective, while also noting that longer-term inflation expectations could rise should inflation not return to 2 percent in a timely manner,” the minutes say.
The minutes also reveal diverging views over the degree of restrictiveness relative to the neutral rate. “Some participants assessed that the Committee’s policy stance would be restrictive even after a potential 1/4 percentage point reduction in the policy rate at this (Oct. 29) meeting. By contrast, some participants pointed to the resilience of economic activity, supportive financial conditions, or estimates of short-term real interest rates as indicating that the stance of monetary policy was not clearly restrictive.”
Looking ahead, “most participants judged that further downward adjustments to the target range for the federal funds rate would likely be appropriate as the Committee moved to a more neutral policy stance over time, although several of these participants indicated that they did not necessarily view another 25 basis point reduction as likely to be appropriate at the December meeting,” say the minutes.
While saying “most” FOMC participants thought further rate cuts would “likely be appropriate,” the minutes were considerably more restrained when it came to the timing of additional rate cuts, saying that “several participants assessed that a further lowering of the target range for the federal funds rate could well be appropriate in December if the economy evolved about as they expected over the coming inter-meeting period.”
Moreover, the minutes disclose that “many participants agreed that the Committee should be deliberate in its policy decisions against the backdrop of these two-sided risks and reduced availability of key economic data.”
While Powell didn’t rule out a December rate cut with his “not a foregone conclusion” remark, many of the comments from other Fed officials this week have tilted toward inaction.
Goolsbee, who voted for both of the recent rate cuts, recalled that before Trump’s April tariff offensive was launched, he believed “rates could go down a fair amount,” because inflation had been moderating and the economy seemed to have reached a state of “stable full employment.”
But now, he has become more reluctant to continue the easing process, he made clear to the Chartered Financial Analyst Society of Indianapolis.
“Now (inflation) seems to have kind of stalled out and if anything given warnings that it’s going the wrong way,” Goolsbee said. “So that .makes me a little uneasy.”
“We’ve got a series of geopolitical and policy shocks that have come in that are masking in my view this underlying (favorable economic scenario),” he elaborated. “The economy is pretty strong, and I feel like eventually we are going to be back to (the view that) interest rates can come down a fair amount, but in the near term I’m a little uneasy front loading too many rate cuts and counting on this being a transitory” inflation blip.
Goolsbee said the Fed can get a better reading on labor markets than on inflation in the absence of government data, and so the lack of inflation data have “made me more paranoid about inflation.” The possibility that inflation could be surging “in the dark” has “made me more uneasy.”
He said the FOMC “made a sacred promise” to get inflation down to its 2% target, and that promise must be kept.
Hammack, who has generally been less dovish on rates than Goolsbee, continued in that stance Thursday as she addressed her Bank’s Financial Stability Conference.
“Inflation has been running above the Fed’s 2% objective for four and a half years,” she observed. “Lowering interest rates to support the labor market risks prolonging this period of elevated inflation, and it could also encourage risk-taking in financial markets.”
“Financial conditions are quite accommodative today, reflecting recent gains in equity prices and easy credit conditions,” she continued. “Easing policy in this environment could support risky lending.”
Hammack added that further rate cuts “could also further boost valuations and delay discovery of weak lending practices in credit markets. This means that whenever the next downturn comes, it could be larger than it otherwise would have been, with a larger impact on the economy. At that point, policy would have less space to further reduce rates and offset weak demand.”
Making an invidious reference to those who call rate cuts “insurance against a more severe slowdown in the labor market,” she warned, “we should be mindful that such insurance could come at the cost of heightened financial stability risks.”
Paulson numbered herself among the “cautious” in a Thursday evening speech at a conference sponsored by the Philadelphia Fed.
“(W)ith upside risks to inflation and downside risks to employment, monetary policy has to walk a fine line,” she said. “In my judgement, the 25-basis-point rate cuts at the September and October meetings were appropriate and have helped to keep policy on that line.”
“But each rate cut raises the bar for the next cut,” Paulson continued. “And that’s because each rate cut brings us closer to the level where policy flips from restraining activity a bit to the place where it is providing a boost.”
“So, I am approaching the December FOMC cautiously,” she went on.
Paulson added that “On the margin, I’m still a little more worried about the labor market than I am about inflation, but I expect to learn a lot between now and the next meeting.”
“And, as I think about monetary policy over the longer arc, I’ll be focused on how to appropriately balance the risks to both inflation and the labor market, guided by my commitment to deliver on the FOMC’s price stability mandate and get inflation all the way back to 2%,” she added.
Reacting to the October employment report, Paulson said the 4.4% unemployment rate is “still in the neighborhood of full employment,” and said that “on balance, I view the data for September as encouraging.”
She added that “the labor market has stayed roughly in balance.”
As for inflation, Paulson lamented that, as measured by the consumer price index, was 3% on a year-over-year basis and said she expects tariffs to keep exerting upward presssure on prices.
However, she said her “base case is that tariffs will increase prices but that they won’t lead to an ongoing inflation problem.”
Paulson said “the overall demand environment is contributing to keeping a lid on inflation as well — with the labor market in balance and many consumers looking for bargains, businesses are cautious about increasing prices.”
Even so, she said she does “view risks to inflation as tilted to the upside, particularly as we are on track for five years of inflation above 2%.”
Cook, speaking later at the same conference, seemed to take to heart Hammack’s warning about the potentially adverse impact of rate cuts on financial stability, without being explicit about it.
Cook, who Trump has tried to fire for alleged mortgage fraud but who nonetheless voted for the September and October rate cuts, said “the financial system remains resilient,” but added, “ vulnerabilities from elevated asset values, growth and complexity in private credit markets, and the potential for hedge fund activity to contribute to Treasury market dislocation warrant attention.”
Echoing the Fed’s recent Financial Stability Report, she said,”our assessment of asset valuations is that they are, on the whole, elevated relative to historical benchmarks in a number of markets, including equity markets, corporate bond markets, leveraged loan markets, and housing markets.”
“I consider any potential financial system vulnerability through the lens of how it might constrain the Federal Reserve’s ability to attain its dual-mandate goals of maximum employment and price stability,” she went on. “Currently, my impression is that there is an increased likelihood of outsized asset price declines.”
Earlier this week, comments from other Fed policymakers illustrated the sharp divisions on the FOMC.
On one hand, Fed Governor Christopher Waller openly called Monday for a 25 basis point December rate cut as added “insurance” against a weakening labor market. He thereby put himself in the same camp as Miran and Governor Michelle Bowman.
Waller, who has been mentioned a a possible successor to Powell when his term as chairman expires in May and who has been only slightly less zealous in advocating rate cuts than Trump appointee Miran, used the same word Goolsbee used to describe progress against inflation to describe job creation: “stalled.”
He began by playing down inflation threats, telling London’s Society of Professional Economists, that “tariff effects have been smaller than many forecasters expected and the fraction borne by consumers will only modestly boost inflation.”
Pointing to “well anchored” inflation expectations, Waller said “this shows that financial markets understand that they need to look through one-time price-level shocks and that they have confidence the FOMC will achieve its 2% target in the medium term.”
“With the evidence of slower economic growth and the prospect of only modest wage increases from the weak labor market, I don’t see any factors that would cause an acceleration of inflation,” he added.
Waller then turned his attention to “the side of the FOMC’s economic mandate that has more of my attention—maximum employment.”
He acknowledged that labor supply has slowed, but declared, “It is clear to me that the data are saying that there has been a greater reduction in demand than supply. I’m not seeing or hearing stories of an acceleration in wage growth, an increase in job openings, or a rise in the quits rate. The overwhelming share of the data I have cited so far supports the weaker demand story.”
This weak labor demand is what the Fed must focus on, according to Waller. “ When outcomes are uncertain, policymakers must manage the risks, and the evidence is pointing toward a greater risk that low job creation is predominantly demand driven. This has implications for monetary policy.”
“With underlying inflation close to the FOMC’s target and evidence of a weak labor market, I support cutting the Committee’s policy rate by another 25 basis points at our December meeting,” he went on. “I am not worried about inflation accelerating or inflation expectations rising significantly. My focus is on the labor market, and after months of weakening, it is unlikely that the September jobs report later this week or any other data in the next few weeks would change my view that another cut is in order.”
Waller added, “I worry that restrictive monetary policy is weighing on the economy, especially about how it is affecting lower-and middle-income consumers. A December cut will provide additional insurance against an acceleration in the weakening of the labor market and move policy toward a more neutral setting.”
By contrast, Vice Chairman Phillip Jefferson seemed to imply Monday that the FOMC should take a pause in December when he said Monday that the Fed should “proceed slowly.”
Jefferson, speaking at the Federal Reserve Bank of Kansas City, said the Oct. 29 rate cut “was appropriate because I see the balance of risks as having shifted in recent months as downside risks to employment have increased.”
“The current policy stance is still somewhat restrictive, but we have moved it closer to its neutral level that neither restricts nor stimulates the economy,” he continued. “The evolving balance of risks underscores the need to proceed slowly as we approach the neutral rate.”
Like many of his colleagues. Jefferson cited “increased downside risks to employment compared to the upside risks to inflation,” He expects the unemployment rate to “inch up slightly by the end of the year.”
“While still solid, I continue to view the risk to my employment forecast as skewed to the downside.” he added
On the inflation side of the ledger, Jefferson noted it is “ running at a rate similar to that of a year ago, a bit below 3%, indicating that progress toward our 2% target has stalled.”
He said this “lack of progress appears to be due to tariff effects, with signs that inflation excluding the effects of tariffs may be continuing to make progress toward 2%,” and he said “a reasonable base case is that tariffs result in a one-time shift in the price level, not an ongoing inflation problem.”
However, Jefferson went on to imply, that the FOMC cannot count on that outcome, hence his recommendation to “proceed slowly.”
Richmond Fed President Tom Barkin was much more ambiguous in Tuesday remarks, but used a marine analogy to suggest that the FOMC may want to “throttle back” on monetary easing, given the murky darkness left by the government shutdown.
“On net, we are seeing pressure on both sides of our mandate, with inflation above our target and job growth down,” He said. “But we also see mitigants on both sides, with consumer pushback and productivity improvements limiting inflation and labor supply slowing at roughly the same pace as labor demand, reducing the hit to unemployment.”