Many Federal Reserve officials support a cautious rate cut, while a hawkish governor states that progress on inflation seems to have stalled

On Friday, several senior officials from the Federal Reserve indicated a preference for cautious interest rate cuts moving forward. Federal Reserve hawk and Governor Michelle Bowman stated that progress on inflation seems to have stalled and still considers inflation to be more concerning than the labor market. Next year's voting member and President of the Chicago Federal Reserve, Austan Goolsbee, mentioned that monetary policy should approach neutral levels within a year, hoping that by the end of next year, the Federal Reserve can be close to the "endpoint" of its interest rate policy. The President of the San Francisco Federal Reserve emphasized that uncertainty requires a cautious decision-making approach, adhering to a gradual interest rate policy.

Currently, several senior officials, including Federal Reserve Chairman Jerome Powell, advocate for a more cautious approach to interest rate cuts. Federal Reserve officials will meet from December 17 to 18 to decide whether to cut rates for the third consecutive time.

Governor Bowman: Progress on Inflation Seems to Have Stalled

On Friday, Federal Reserve hawk and Governor Michelle Bowman expressed a preference for cautious interest rate cuts, gradually lowering the policy rate, and emphasized that U.S. inflation remains alarmingly above the Federal Reserve's 2% target level.

Bowman pointed out that the upside risks to price growth remain prominent, and progress on inflation seems to have stalled; she currently believes that inflation is more concerning than the labor market. When the Federal Open Market Committee (FOMC) decides on monetary policy, inflation is the top priority.

Bowman mentioned that if the pace of rate cuts is too rapid, it could trigger a wave of investment, reigniting inflation. It is important to pay attention to the dry powder (referring to uninvested funds) that remains on the sidelines, maintaining caution, and gradually working towards neutral levels.

Bowman stated that the U.S. economy is strong, and the labor market is close to full employment. With such significant growth, it is hard to believe that the current policy rate of the Federal Reserve is restrictive. She believes that the so-called neutral rate has risen, which is another reason to remain cautious.

Regarding the non-farm payroll data released on Friday, Bowman noted that even though the unemployment rate has risen, it remains at historically low levels. Employment data and the latest U.S. inflation data to be released next week will help guide her decisions on interest rate policy later this month.

At the Federal Reserve's September meeting, Bowman disagreed with the FOMC's decision to cut rates by half a percentage point, preferring smaller adjustments.

President of the Cleveland Federal Reserve: Approaching or Reaching the Point to Slow Rate Cuts

Beth Hammack, a 2024 FOMC voting member and President of the Cleveland Federal Reserve, stated that she is open to the decisions of the Federal Reserve's next policy meeting, as the overall economic conditions support a slowdown in the pace of rate cuts. "I believe we are approaching or have reached the point where we can slow the pace of rate cuts. Given the strong economic performance, taking slow actions will allow us to calibrate policy to the appropriate tightening level over time."

Hammack mentioned that the U.S. economy is strong, the labor market is quite healthy, and the pace of inflation decline has slowed, expecting gradual progress on inflation moving forward, with housing inflation taking longer to recede.

In her remarks, Hammack stated that given the current economic conditions, the Federal Reserve may not be far from a neutral policy stance, and maintaining a tightening monetary policy is reasonable. Although she pointed out that estimating the degree of tightening is somewhat challenging, the resilience of economic growth, a healthy labor market, and still high inflation indicate that maintaining a moderately tightening monetary policy stance remains appropriate for some time Hammack pointed out that financial markets expect a potential interest rate cut by the end of January next year, with several more cuts possibly occurring by the end of 2025. This path aligns with her current expectations for the federal funds rate, which is based on forecasts of robust economic growth, low unemployment, and gradually improving inflation.

Hammack stated that the data available from now until the FOMC monetary policy meeting on December 17-18 will shape the outlook.

Regarding the potential impact of President-elect Trump's tariff policies, Hammack believes it is too early to make a judgment. She also mentioned that U.S. debt seems to be on an unsustainable growth path.

Next Year's Voter: Monetary Policy Should Approach Neutral Level Within a Year

Next year's voter, Chicago Fed President Goolsbee, stated that the pace of future interest rate cuts by the Federal Reserve will depend on economic conditions, but he hopes that by the end of next year, the Fed will be close to the "endpoint" of its rate policy. The policy interest rate over the next year will be significantly lower, although the pace of cuts may slow down in 2025, and monetary policy should approach a neutral level within a year.

Goolsbee mentioned that he is optimistic that the U.S. economic conditions will continue to develop, allowing the Fed to approach a policy range that has a neutral impact on the economy. He did not specify the exact value of the "neutral level," but he believes that around 3% is reasonable, which is significantly lower than the current range of 4.5% to 4.75% and close to the neutral level predicted by Fed officials during the September meeting.

Goolsbee stated that current inflation or labor conditions do not meet the criteria for the Fed to pause interest rate cuts. A pause would only be requested when conditions change.

Goolsbee pointed out that, in the long term, U.S. inflation is trending downward. Overall, the progress made on inflation remains encouraging. Regarding the non-farm payroll data released on Friday, he noted that the report of 227,000 new jobs in November indicates that the economy has largely returned to pre-pandemic normalcy, with the unemployment rate close to full employment levels, and monthly job growth is similar to the levels seen in the decade before the pandemic. The current job market is more balanced, the economy is stabilizing, and immigration has a significant impact on the size of the U.S. labor force.

Additionally, Goolsbee is more optimistic about the recent rise in labor productivity, believing that this trend may continue. This will enhance confidence in slowing inflation, increase the potential for U.S. economic growth, and possibly alleviate labor shortages. He also mentioned that companies are investing in automation and labor-saving technologies when facing recruitment difficulties, and this change may gradually expand to more industries, potentially impacting monetary policy. He believes these changes are worth noting and may provide new grounds for future policy decisions.

This Year's Voter, San Francisco Fed President: Uncertainty Requires Cautious Decision-Making

This year's voter, dovish San Francisco Fed President Daly, stated that the job market remains in good shape. It is uncertain how quickly inflation will return to 2%.

Regarding President-elect Trump, she stated that she does not know what net impact the U.S. president's policies will have and cannot predict what will happen in the future. Uncertainty requires a cautious decision-making approach. She insists on a gradual approach to interest rate policy actions