Khaberni - A faction within the American Federal Reserve's policymakers has intensified its warnings about the possibility of a slowdown or halt in progress made in reducing inflation in the United States, raising doubts about the chances of another interest rate reduction in December, and revealing a widening division within the central bank.
Officials generally agree that the labor market is weakening, but they are divided over whether this slowdown will worsen. While one team deals calmly with price pressures, others warn that the current interest rates barely restrain the economy, and believe that further cuts could jeopardize the progress in fighting inflation in the United States.
This public debate is unusual and reflects the difficulty in assessing the current economic situation and the dilemma faced by the Federal Reserve Chair Jerome Powell, who is tasked with forging consensus on the monetary policy path.
According to William English, a professor at the Yale School of Business and former director at the Federal Reserve, they face a tough decision, and I think people want their stance to be clear, which is why they express it and present their arguments. Indeed, it is a complicated situation for the committee and Powell to try and build consensus.
After Powell rallied support for a rate cut at the last two Federal Reserve meetings, he acknowledged that another cut is not guaranteed. Opinions that prompted this warning became public in recent days, with some officials clearly stating that they would not support a rate cut at the meeting scheduled for December 9 and 10.
The skeptics of a rate cut base their stance on two ideas; the first is that they see the slowdown in job growth might reflect changes in immigration policy and technology, not an actual decline in labor demand signaling a sharp rise in unemployment. The second is that they point to inflation risks that are not limited to tariffs, but also include continued strong consumer demand. They also note that inflation in the United States has remained above the target for several years, undermining the credibility of the American Federal Reserve.
A wave of statements issued last week from hardliners on inflation in the United States prompted investors to lower their expectations for an interest rate cut in December. According to future federal funds rate contracts, the probabilities have dropped to about 50%, after being close to 100% before the meeting last October. However, this does not mean that proponents of monetary easing have given up, as their statements have been less visible, but they likely still constitute the majority among the monetary policy committee members.
