Fed’s regional presidents lining up against additional rate cuts
Three Federal Reserve policymakers have voiced their resistance to the notion that the U.S. economy needs lower interest rates, foreshadowing a sharp debate at the central bank’s meeting next month with officials who want to cut again.
Investors have fully priced a quarter percentage-point reduction at the Sept. 17-18 meeting, but dissenting Fed voices may limit the prospects for the larger move that some have advocated, including President Donald Trump.
Fed Chairman Jerome Powell could provide more guidance when he speaks Friday at the annual central banker retreat in Jackson Hole, Wyo.
“As I look at where the economy is, it’s not yet time, I’m not ready, to provide more accommodation to the economy without seeing an outlook that suggests the economy is getting weaker,” conference host and Kansas City Fed president Esther George told Bloomberg Television. The interview was recorded Wednesday night for broadcast Thursday.
She was followed by Philadelphia Fed chief Patrick Harker, who said Thursday that he went along with the recent interest rate cut “somewhat reluctantly” and would like to hold rates steady for some time.
“We’re roughly where neutral is right now, and I think we should stay here for a while and see how things play out,” Harker said in an interview with CNBC television.
Boston’s Eric Rosengren also voiced his opposition to additional cuts in an Aug. 19 interview on Bloomberg TV.
George and Rosengren dissented against the Fed’s July 31 decision to cut interest rates for the first time since 2008. George spoke before the annual policy symposium that this year will examine challenges facing monetary policy, a timely topic as officials weigh the appropriate policy response to slowing global growth and the risks of an escalating trade war.
Minutes of the policy meeting in July, published Wednesday, revealed that Fed officials were split over the need to cut rates. The discussion pitted policy makers concerned about trade conflicts, slowing global growth and too-low inflation against those who saw strong U.S. economic data as an indication that businesses and consumers are powering through the latest uncertainties. The minutes said “several” officials favored keeping rates on hold, making clear the opposition went beyond George and Rosengren.
“Easing policy is not a free choice,” George said. “It, remember, pulls forward demand. It can make leverage more attractive.
“And I think, depending on where you think you are in the business cycle, it can create more risk.”
Like Rosengren and Harker, George said the U.S. economy was slowing but still appeared to be in good shape.
“When I look at where unemployment is and I look at where inflation is right now, I think we’re in a good place as long as the consumer can continue to pull the economy forward,” George said. “Obviously, we have some weaker segments in our economy, but to the extent that our forecast of growing at around 2% holds, then I think we’re OK.”