Fed’s Regional Presidents Lining Up Against Additional Rate Cuts
Three Federal Reserve policy makers voiced their resistance to the notion that the U.S. economy needs lower interest rates.
(Bloomberg) --
Three Federal Reserve policy makers voiced their resistance to the notion that the U.S. economy needs lower interest rates, and a fourth said he wanted to avoid taking further action “unless we have to,” foreshadowing a sharp debate with officials who want to cut again.
Investors have fully priced a quarter percentage-point reduction at the Fed’s Sept. 17-18 policy meeting, but dissenting Fed voices may limit the prospects for the larger move that some have advocated, including President Donald Trump.
Chairman Jerome Powell could provide more guidance when he speaks on Friday at the annual central banker retreat in Jackson Hole, Wyoming.
“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 late Wednesday for broadcast on Thursday.
She was followed by Philadelphia Fed chief Patrick Harker who said Thursday that he went along with the recent 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.
Later on Thursday, Dallas Fed President Robert Kaplan also sounded hesitant about cutting at the next Fed meeting, set for Sept. 17-18.
“I’d like to avoid having to take further action, but I think I’m going to have an open mind about taking action over at least the next number of months if we need to,’’ he said in an interview with CNBC.
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 rates for the first time since 2008. George spoke ahead of 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 July policy meeting, published Wednesday, revealed 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 okay.”
Financial markets have been volatile in recent weeks amid unfavorable news about economic weakness overseas and renewed trade tensions between the Trump administration and China. Data released Thursday showed U.S. factory orders in August contracted for the first time since September 2009.
“Markets see how the rest of the world is slowing. I think uncertainty never plays well in the markets,” George said. “So, I understand why you see fear and uncertainty right now. That isn’t the metric, though, that I feel we have to focus on. We have a clear mandate and, I think, a long-term view that we have to stay focused on.”
--With assistance from Michael McKee and Kathleen Hays.
To contact the reporters on this story: Matthew Boesler in New York at mboesler1@bloomberg.net;Christopher Condon in Washington at ccondon4@bloomberg.net
To contact the editors responsible for this story: Margaret Collins at mcollins45@bloomberg.net, Alister Bull
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