Two Fed Officials Go Head-to-Head Over Interest Rate Cuts: Weakening Labor Market vs. Inflation Fears
Fed Officials Sound Alarm on Weakening Job Market
Federal Reserve governor Chris Waller expressed his support for cutting interest rates at the next policy meeting in December, citing concerns that the job market may be weakening more significantly than inflation accelerating. This view was echoed by Fed vice chair Philip Jefferson, who indicated that downside risks to employment have increased compared to upside risks to inflation.
In a recent speech titled "The Case for Continuing Rate Cuts," Waller emphasized the need for additional insurance against an acceleration in the weakening of the labor market and moving policy toward a more neutral setting. He noted that despite the uncertainty surrounding the upcoming unemployment data, he believes the labor market is still weak and near stall speed.
Waller described the current payroll growth as being driven by both weaker demand for workers and lower immigration rates, but the overall weakness in payroll growth is primarily due to reduced worker demand. He highlighted that while economic indicators such as wage growth, job openings, or quits rate have not shown a significant increase, they are also not indicative of job market acceleration.
The governor cited data from May to August showing stalled job creation in the US and even revised figures suggesting employment likely decreased over this period. Waller urged caution against dismissing potential rate cuts based on "data fog," insisting that policymakers must continue to adjust their framework as needed to address changing economic conditions.
Jefferson also weighed in, stating that despite the current policy stance being close to its neutral level, there is still room for adjustment given the evolving balance of risks. The vice chair noted the need to "proceed slowly" as they approach the neutral rate and hinted at a more cautious approach considering their meeting-by-meeting framework.
While Waller mentioned limited job opening data, Jefferson pointed out that anecdotal evidence suggests mixed outcomes in the job market. On inflation, Fed officials are closely monitoring prices following tariffs implementation. Inflation appears to have likely peaked around 3%, but there’s still ongoing debate about whether inflation levels will remain stable or if they’ll continue their upwards trend.
Market sentiment has shifted in favor of maintaining current interest rates after some voting members expressed reservations about cutting further due to rising concerns regarding inflation and policy. Following the market’s response, the probability of a rate cut next month fell from 94% about a month ago to just 42%.
Two Fed Officials Go Head-to-Head Over Interest Rate Cuts: Weakening Labor Market vs. Inflation Fears
Fed Officials Sound Alarm on Weakening Job Market
Federal Reserve governor Chris Waller expressed his support for cutting interest rates at the next policy meeting in December, citing concerns that the job market may be weakening more significantly than inflation accelerating. This view was echoed by Fed vice chair Philip Jefferson, who indicated that downside risks to employment have increased compared to upside risks to inflation.
In a recent speech titled "The Case for Continuing Rate Cuts," Waller emphasized the need for additional insurance against an acceleration in the weakening of the labor market and moving policy toward a more neutral setting. He noted that despite the uncertainty surrounding the upcoming unemployment data, he believes the labor market is still weak and near stall speed.
Waller described the current payroll growth as being driven by both weaker demand for workers and lower immigration rates, but the overall weakness in payroll growth is primarily due to reduced worker demand. He highlighted that while economic indicators such as wage growth, job openings, or quits rate have not shown a significant increase, they are also not indicative of job market acceleration.
The governor cited data from May to August showing stalled job creation in the US and even revised figures suggesting employment likely decreased over this period. Waller urged caution against dismissing potential rate cuts based on "data fog," insisting that policymakers must continue to adjust their framework as needed to address changing economic conditions.
Jefferson also weighed in, stating that despite the current policy stance being close to its neutral level, there is still room for adjustment given the evolving balance of risks. The vice chair noted the need to "proceed slowly" as they approach the neutral rate and hinted at a more cautious approach considering their meeting-by-meeting framework.
While Waller mentioned limited job opening data, Jefferson pointed out that anecdotal evidence suggests mixed outcomes in the job market. On inflation, Fed officials are closely monitoring prices following tariffs implementation. Inflation appears to have likely peaked around 3%, but there’s still ongoing debate about whether inflation levels will remain stable or if they’ll continue their upwards trend.
Market sentiment has shifted in favor of maintaining current interest rates after some voting members expressed reservations about cutting further due to rising concerns regarding inflation and policy. Following the market’s response, the probability of a rate cut next month fell from 94% about a month ago to just 42%.