"Fed Whisperer": Three Rate Cuts Fail to Resolve Internal Disputes, "Stagflation Risk" Needs Caution

The "Fed Whisperer" Nick Timiraos recently wrote that Fed officials have cut rates for the third consecutive meeting, but there is unusual internal disagreement over whether inflation or the job market should be the greater concern, leading to low willingness among officials to signal further rate cuts. Public comments from Fed officials in recent weeks show such severe division within the committee that the final decision may depend on how Chair Jerome Powell wishes to proceed. Powell's term ends in May next year, meaning he will only chair the next three rate-setting meetings. Stubborn price pressures coupled with a cooling labor market present the Fed with an unpleasant trade-off not faced in decades. During the so-called "stagflation" period of the 1970s, when officials faced similar dilemmas, the Fed's stop-and-go response allowed high inflation to become entrenched. Jonathan Pingle, chief U.S. economist at UBS, said: "As rates approach neutral, each cut loses you more participants' support. You need data to incentivize those participants to join the majority for rate cuts."