Four Fed policymakers favour more rate cuts, but differ on pace
Strong retail sales and bigger-than-expected job growth in September have boosted speculation that the Fed could cut rates more slowly or even pause at its next meeting
WASHINGTON - Four US Federal Reserve policymakers on Oct 21 expressed support for further interest rate cuts but appeared to differ on how fast or far they believe any cuts should go.
Three of them, citing the strength of the economy and an uncertain outlook, expressed a preference for going slow, using words such as “modest” and “gradual” to describe their views on the right pace for rate cuts.
The fourth, San Francisco Fed president Mary Daly, said she feels Fed policy is “very tight” and does not believe that a strong economy, as long as inflation continues to fall, should keep the central bank from continuing to reduce rates.
The remarks provide a small taste of what is expected to be a broad but closed-door debate on the appropriate path for policy at the Fed’s upcoming policy meeting on Nov 6 and 7.
After Oct 25, US central bankers will observe a communications blackout – abstaining from any public comments on their monetary policy views – until the Fed announces its policy decision at the close of the two-day meeting.
“While I support dialling back the restrictiveness of policy, my preference would be to avoid outsized moves, especially given uncertainty over the eventual destination of policy and my desire to avoid contributing to financial market volatility,” Kansas City Fed president Jeffrey Schmid told the Certified Financial Analysts Society of Kansas City. He said he believes rate cuts should be gradual and deliberate.
Dallas Fed president Lorie Logan, speaking earlier in the day to the Securities Industry and Financial Markets Association in New York, made similar remarks.
“If the economy evolves as I currently expect, a strategy of gradually lowering the policy rate toward a more normal or neutral level can help manage the risks and achieve our goals,” she said.
The Fed in September cut its benchmark rate by a bigger-than-expected half of a percentage point, to a range of 4.75 per cent to 5 per cent, given the cooling in both inflation and labour markets. It was the first rate cut in four years.
Fed policymakers’ economic projections published at the time showed that most thought further, and likely smaller, rate reductions would be appropriate.
Since then, strong retail sales and bigger-than-expected job growth in September have boosted speculation that the Fed could cut rates even more slowly, perhaps even pausing at November’s rate-setting meeting or the one in December.
Ms Daly, in a webcast interview with The Wall Street Journal, gave no indication she would support a pause. “I haven’t seen any information that would suggest we wouldn’t continue to reduce the interest rate consistent with achieving that durable expansion,” she said when asked about the November decision.
“This is a very tight interest rate for an economy that already is on the path to 2 per cent inflation and I don’t want to see the labour market slow further.”
The Fed, she added, should be “open-minded” to the possibility that stronger productivity growth may be allowing the economy to grow faster without pushing up on inflation, allowing the central bank to continue to reduce rates.
Of the four Fed officials who spoke on Oct 21, Ms Daly is the only current voter on the rate-setting Federal Open Market Committee, though all policymakers attend meetings and voice opinions.
Minneapolis Fed president Neel Kashkari on Oct 21 appeared to endorse a go-slow approach to rate cuts, repeating his call for “modest” interest rate cuts over the next “several quarters”.
He said the economy’s strength shows the eventual resting point for the policy rate – what is known as the neutral rate, where borrowing costs neither slow nor stimulate growth – may be higher than it was in the past, a point that Mr Schmid also made.
“We want to keep the labour market strong and we want to get inflation back down to our 2 per cent target,” Mr Kashkari said, and the appropriate path of interest rates will “depend on the data”.
But he added that a sharp deterioration of labour markets could move him to advocate for faster cuts. REUTERS
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