The ink has barely dried on the Federal Reserve’s September monetary policy statement, but the timing and degree of future interest rate cuts is already being hotly debated among U.S. central bankers, with officials presenting starkly different takes on inflation risks and the appropriate Fed response.
The Federal Reserve presented a surprisingly unified front when it voted to cut the benchmark federal funds rate by a quarter-point on Sept. 17.
Heading into the meeting, Fed watchers had speculated there could be three policy dissents for the first time since 1988. In the end, 11 of the 12 voting members of the Federal Open Market Committee (FOMC) voted in favor of the 0.25% rate cut, which lowered the overnight lending rate to a range of 4% to 4.25%.
The lone dissenting voice came from newest member Stephen Miran, who took the oath of office just minutes before the FOMC meeting commenced. He voted for a jumbo half-point rate cut.
Miran’s first Fed speech
Miran, a nominee of President Donald Trump who was confirmed by the Senate on Sept. 15 to fill a temporary four-month term on the Fed’s Board of Governors, elaborated on his policy views Monday during a speech at the Economic Club of New York.
Miran began his prepared remarks with a bang, calling current Fed monetary policy “very restrictive” — a break from Fed Chair Jerome Powell’s persistent characterization of the central bank’s “modestly restrictive” stance.
“I believe the appropriate fed funds rate is in the mid-2% area, almost two percentage points lower than current policy,” Miran declared.
The newly appointed Fed governor downplayed inflation risks, which more restrictive monetary policy is meant to combat. He believes tariffs have resulted in “relatively small changes in some goods prices,” though he sees “unreasonable levels of concern” in the inflationary alarm bells raised by some economists about the Trump administration’s trade policies.
At the same time, Miran sees overly tight monetary policy posing “material risks to the Fed’s employment mandate.”
“Leaving short-term interest rates roughly two percentage points too tight risks unnecessary layoffs and higher unemployment,” Miran stated.
Bostic worries about inflation
Atlanta Fed President Raphael Bostic, who is slated to assume one of the FOMC’s five rotating seats in 2027, revealed in a recent interview with The Wall Street Journal that his “dot plot” submission to the central bank’s Summary of Economic Projections lightly penciled in only one rate cut for all of 2025.
Besides the 12 voting members of the FOMC, seven additional Fed members participated in that forward-looking dot plot survey. Bostic joined five other Fed officials in calling for a single rate cut of 25 basis points this year, one participant indicated support for no cuts, and nine participants supported two more quarter-point cuts in 2025.
Miran’s dot was far below the others in the range of 2.75% to 3% — a target he revised even lower in Monday’s speech.
Bostic told the Journal that although he sees the unemployment rate rising another 20 basis points this year to 4.5%, his overarching inflation concerns inform his cautious approach to rate cuts. He sees the inflation rate hitting 2.9% this year, with core inflation less food and energy prices reaching 3.1%.
“For me, the risk to the price-stability mandate is still the most significant. We are not at target. We’re still a ways from it,” Bostic said, referring to the Fed’s 2% inflation goal. “And we get signs from our contacts and from our surveys that prices are likely to still go up some more from here. So we’re going to see some upward movement in inflation. I worry about that.”
He elaborated that preemptive strategies employed by companies to minimize the impacts of tariffs in final prices paid by consumers have a “finite amount of time that they play out.”
“We are getting to the end of that time for many,” Bostic cautioned, adding that “early 2026 could see some movement in prices.”
Hawkish Hammack
Cleveland Fed President Beth Hammack, an alternate FOMC member set to join the voting committee next year, parted ways with Miran during a Monday “Fed Talk” event in Cleveland. She called current monetary policy “mildly restrictive,” deeming it an appropriate stance based on pressures to both sides of the Fed’s dual mandate of promoting stable consumer prices and maximum employment.
“Right now is a unique time for monetary policy, because we’re being challenged on both sides of our mandate,” Hammack said. “We’ve got inflation that’s too high and heading higher, and there’s some signs of fragility in the labor market.”
Still, Hammack views that balance of risks as being tipped toward addressing the inflation side of the mandate, as the latest unemployment rate of 4.3% is “right around full employment” while inflation is missing the mark “by a more meaningful number, by a full percentage point.”
“We’ve been missing for four-and-a-half years, and I anticipate we will continue missing for the next couple of years,” Hammack stated. She thinks the Fed “should be very cautious in removing monetary policy restriction because I think it’s important that we stay restrictive to bring inflation back down to target.”
