Fed Officials Diverge on Need for Possible Interest-Rate Cut

(Bloomberg) -- Two Federal Reserve officials laid out the case for a possible interest-rate cut just days after Chairman Jerome Powell said there was no reason to move in either direction.

Two other U.S. central bankers sounded more comfortable with the current policy stance.

St. Louis Federal Reserve Bank President James Bullard and Chicago Fed President Charles Evans, both policy voters this year, expressed caution Friday over weak prices and said the central bank may have to act to lift inflation out of a persistently low trend.

That contrasts with Powell’s dismissal of the most recent dip in inflation readings as temporary during his press conference on Wednesday after the Fed held rates steady, pushing back against pressure for a cut from traders and President Donald Trump.

Remarks later on Friday by Vice Chairman Richard Clarida and Cleveland Fed chief Loretta Mester, who is not a voter this year, were more in line with Powell.

The chairman had said officials wouldn’t ignore inflation that ran too low for too long below their 2 percent target, but argued price pressures should be supported by a healthy economy and the lowest unemployment in nearly 50 years. Data released Friday showed surprisingly strong hiring and cooler-than-projected wage gains, suggesting a hot labor market can extend its run.

Inflation excluding food and energy prices slowed to 1.6 percent in the 12 months through March compared with 1.95 percent in December.

‘Open to a Rate Cut’

Bullard said he is prepared to wait through the summer. But if inflation expectations “are still too low and actual inflation doesn’t seem to be picking up then I think the level of my concern would get more intense,” he told Reuters in an interview on Friday. “I am open to a rate cut to try to combat this.’’

Evans, answering questions after a speech in Stockholm, said he would “not be afraid to act” if a rate cut was warranted by the inflation outlook, though he also said it would take some time for him to come to that view. “It would take a number of data reports to take as very serious the under-running of inflation. I am certainly saying I want to see more monthly reports,” he said.

The day featured a number of public remarks by U.S. central bankers, several of whom were taking part in a Hoover Institution monetary policy conference in Stanford, California.

‘Very Good Place’

Clarida, in a speech to the conference, echoed Powell by noting the economy was in a “very good place” with inflation muted and expectations stable. That meant the central bank can afford to be data dependent as it assesses “what, if any, further adjustments in our policy stance might be required to maintain our dual-mandate objectives,” he said.

Mester, speaking in an interview to Bloomberg Television’s Michael McKee on the sidelines of the event, said the Fed was “in a good spot to wait and let the economy tell us how it’s doing.” She also said she was “not there” in response to a question about whether low-inflation concerns might lead to a rate cut.

Dallas Fed chief Robert Kaplan told the conference that, despite some recent weakness in headline and core inflation readings, price pressures should rebound and end the year in the range of 2 percent.

A diversity of views among officials is not uncommon at the central bank. Still, those views haven’t so far led to any dissents by policy voters since Powell became chairman in February 2018. Also, during post-meeting press conferences he hasn’t conveyed much sense of the variety of views on the Federal Open Market Committee, which are more apparent in meeting minutes released with a three-week lag.

Messaging by the FOMC, such as the policy statement and subsequent press conference, “has difficulty communicating scenarios’’ in which they would alter policy, said Michael Gapen, chief U.S. economist at Barclays Capital Inc. That may be because that would be a form of forward guidance that Powell is currently averse to.

Fed Dissents

Powell has not suffered a single dissent in the 10 policy meetings that he’s chaired, in contrast with his two predecessors. Janet Yellen had a dissent at her first scheduled FOMC meeting on March 19, 2014. Ben Bernanke got one at his fourth meeting.

There may be an obvious reason for the unity around Powell at this time. The Fed has suffered a barrage of attacks from Trump and others in his administration demanding Powell cut rates. The drumbeat continued Friday when Vice President Mike Pence told CNBC that low inflation means “this is exactly the time, not only to not raise interest rates, but we ought to consider cutting them.”

“I think the president’s pressure has had an important effect,” said Mark Spindel, chief investment officer at Potomac River Capital and co-author of a book on the Fed’s relationship with Congress. “It bands them together, but sometimes raising your hand and saying, ‘I disagree’ can be an important way to communicate.”

To contact the reporters on this story: Craig Torres in Washington at ctorres3@bloomberg.net;Rich Miller in Stanford, CA at rmiller28@bloomberg.net;Christopher Condon in Washington at ccondon4@bloomberg.net

To contact the editors responsible for this story: Alister Bull at abull7@bloomberg.net, Sarah McGregor

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