Four Fed Policymakers Back Further Rate Cuts, Differ on Pace
Four policymakers at the Federal Reserve expressed support for further rate cuts on Monday, but there seemed to be disagreement over the speed and magnitude of the cuts. Three of them, citing economic strength and uncertain prospects, expressed a preference for gradual rate cuts, using words like "moderate" and "gradual" to describe their views on the correct pace of rate cuts.
Mary Daly, president of the Federal Reserve Bank of San Francisco, said she believes the Fed's policy is "very tight" and does not think that a strong economy will prevent the Fed from continuing to cut rates as long as inflation continues to decline.
At the policy meeting to be held by the Fed from November 6 to 7, it is expected that there will be extensive but non-public debates around the appropriate policy path.
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After Friday, before the Fed announces its policy decision at the end of its two-day meeting on November 7, U.S. central bank officials will remain silent and not make any public comments on their views on monetary policy.
"While I support easing policy restrictions, I prefer to avoid overdoing it, especially considering the uncertainty of where policy will ultimately go, and I want to avoid exacerbating financial market volatility," Jeffrey Schmid, president of the Federal Reserve Bank of Kansas City, said to the Kansas Registered Financial Analysts Association. He said he believes rate cuts should be gradual and thoughtful.
Lorie Logan, president of the Federal Reserve Bank of Dallas, also made similar remarks earlier that day in New York in a speech to the Securities Industry and Financial Markets Association.
"If the economy develops as I currently expect, a strategy of gradually reducing the policy interest rate to a more normal or neutral level can help manage risks and achieve our goals," she said.
Considering that both inflation and the labor market are cooling down, the Fed cut the policy interest rate by 0.5 percentage points last month, to a range of 4.75% to 5%, which was higher than expected. This was the first rate cut in four years.
The economic forecasts released by Fed policymakers at the time showed that most people believe further, possibly smaller rate cuts are appropriate.Since then, strong retail sales in September and higher-than-expected job growth have sparked speculation that the Federal Reserve might cut interest rates at a slower pace, or even pause rate cuts at the next meeting in November or December.
Daly, in a live interview with the Wall Street Journal, did not indicate that she would support a pause.
When asked about the decision in November, she said: "I don't see any information suggesting that we won't continue to cut rates to achieve sustained expansion."
"For an economy with an inflation rate already close to 2%, this is a very tight interest rate, and I don't want to see the labor market slow down further."
She added that the Federal Reserve should be "open" to the possibility that stronger productivity growth could allow the economy to grow faster without raising inflation, allowing the Fed to continue cutting rates.
Among the four Federal Reserve officials who spoke on Monday, Daly is currently the only one who votes on the Federal Open Market Committee (FOMC), although all policymakers attend the meeting and express their opinions.
Minneapolis Federal Reserve Bank President Neel Kashkari seemed to support slow rate cuts on Monday, reiterating his call for "moderate" rate cuts in the coming "few quarters."
He said that the strength of the economy shows that the final interest rate of policy rates - the so-called neutral rate, which is the interest rate that neither slows down nor stimulates economic growth - may be higher than in the past, which Schmid also mentioned.
Kashkari said: "We want to maintain a strong labor market, and we want inflation to return to the 2% target level." The appropriate interest rate path will "depend on the data."
However, Kashkari said that a sharp deterioration in the labor market could prompt him to support faster cuts. Kashkari said at a town hall meeting of the Chippewa Falls Area Chamber of Commerce: "If we see real evidence that the job market is weakening rapidly, then this will tell me, as a policymaker, 'Hey, maybe we should lower interest rates faster than I currently expect.'"