Fed Divides Deepen: Some Officials Push for Deeper Cuts, Others Warn of Inflation’s Return

The Federal Reserve is once again facing internal conflict, as officials remain split on how aggressively to cut rates while the U.S. economy cools under President Donald Trump’s second term.

Doves Want Deeper Cuts, Hawks Push Back According to Bloomberg, the Fed is widely expected to deliver a second consecutive rate cut this week to support a labor market that has lost momentum in recent months. The division is clear:

🔹 Doves are calling for sharper rate cuts to prevent further job losses.

🔹 Hawks warn that too much easing could reignite inflation, which has stayed above the 2% target for years. Friday’s consumer price data showed inflation rising at its slowest pace in three months, offering room for another near-term cut — but little reassurance to those concerned that price pressures remain persistent. Economist Nicole Cervi of Wells Fargo noted: “The Fed will stay biased toward easing in October, but the underlying picture on inflation hasn’t really changed.”

Weak Job Market Strengthens the Case for Easing For most of this year, the Fed had been in wait-and-see mode, monitoring how tariffs and policy changes were affecting the economy. But after a sharp drop in hiring over the summer, the central bank cut rates by a quarter point in September and signaled two more cuts by December. Private-sector data — the only data currently available amid the ongoing government shutdown — confirms that the labor market remains weak. Fed Chair Jerome Powell said earlier this month that the job market had “softened quite substantially” and that the economy faced “significant downside risks.” That reinforced market expectations for further easing. Futures markets are now fully pricing in: A quarter-point cut this week,Another in December,And a third by March.

Investors have already cheered the prospect. The $29 trillion U.S. Treasury market is having its best year since 2020, up 1.1% this month amid growing expectations of lower rates. The 10-year yield has fallen below 4%, levels last seen in April, extending a rally that’s lowered borrowing costs from mortgages to credit cards. “It’s going to be very difficult to walk away from the 50 basis points already priced in for the next two meetings,” said Vishal Khanduja of Morgan Stanley Investment Management.

Hawks Warn: Inflation Could Return Still, a growing number of regional Fed presidents — including Alberto Musalem (St. Louis), Jeff Schmid (Kansas City), and Beth Hammack (Cleveland) — argue that the central bank is moving too fast. Out of the 19 policymakers, 9 favor no more than one additional cut, and 7 prefer none at all. They supported the September move due to weaker hiring, but they now point to shrinking labor supply as a new factor that limits the need for further easing. Job growth has averaged just 29,000 per month over the past three months — low, but still roughly the “breakeven” rate to maintain stable unemployment. Hammack has warned that service-sector inflation remains above 3% year-on-year (excluding housing) for four consecutive months. Other officials note an even bigger concern: inflation has been above the Fed’s 2% goal for more than four years, and forecasts don’t show a return to target until 2028 — a major credibility risk. “Keeping long-term inflation expectations anchored is essential for the credibility of monetary policy,” said Philadelphia Fed President Anna Paulson. “We need to finish the job and bring inflation fully back to 2%.”

Stuck with the Old Plan amid Data Shortages With the government still shut down, the Fed lacks fresh official data, meaning policymakers will likely stick to the September roadmap — two more cuts this year and another one in 2026. Economist Veronica Clark of Citigroup commented: “There’s still a lot of division, but there hasn’t been anything new enough to really change anyone’s mind.” Even Governor Christopher Waller, one of the earliest voices warning about hiring slowdowns, has recently urged caution: “Something’s gotta give. Either growth slows to match a soft labor market, or the labor market rebounds to match stronger growth.”

#Fed , #FederalReserve , #JeromePowell , #Inflation , #TRUMP

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