[WASHINGTON] Federal Reserve officials on Monday (Sep 22) cast doubt on the need for further rate cuts at a time when inflation remains above the central bank’s 2 per cent target and the job market remains near full employment.
Both St Louis Fed president Alberto Musalem and Atlanta Fed president Raphael Bostic, in separate remarks, said that while the Fed’s quarter of a percentage point rate cut at last week’s meeting was appropriate as a way to manage the risk of rising unemployment, lowering inflation remains the priority.
“I supported the 25-basis-point reduction in the FOMC’s policy rate last week as a precautionary move intended to support the labour market at full employment and against further weakening,” Musalem said in remarks at the Brookings Institution in Washington DC. “However, I believe there is limited room for easing further without policy becoming overly accommodative, and we should tread cautiously.”
Bostic, in a Wall Street Journal interview, said the cut made last week was the only one he feels is likely needed this year given inflation remaining about a percentage point above the Fed’s target.
“I am concerned about the inflation that has been too high for a long time. And for me, I think it’s important that we continue to signal the importance of that,” Bostic said. Of a possible rate cut at the next meeting in October, “I today would not be…in favour of it, but we’ll see what happens,” said Bostic, who is not a voter on rate policy this year.
Their comments reflect the ongoing debate at the Fed about how far and fast to move rates.
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Fed governor Stephen Miran, who dissented at last week’s meeting in favour of a half-point cut and sees steep reductions as appropriate for the rest of the year, speaks later on Monday and is anticipated to lay out the case for a lower benchmark rate.
Musalem is a voter on interest rate policy this year, and said he still feels the risk of more persistent inflation above the Fed’s target means the benchmark interest rate needs to remain high enough to offset the risk of rising prices.
“Monetary policy should continue to lean against persistence in above-target inflation,” Musalem said. While there may be risks to the unemployment rate, unless those start to materialise “overemphasising the labour market…could do more harm than good.”
Fed officials last week were closely divided over the need for further rate cuts this year. While the median projection is for two more quarter-point reductions by the end of 2025, seven policymakers see no more cuts as appropriate. REUTERS
