The third-ranking official of the Federal Reserve stated that gradual interest rate cuts are appropriate, and next year's voting committee reiterated its opposition to a rate cut in September

On the eve of the highly anticipated Federal Reserve's September interest rate meeting, there are clear divisions within the Federal Reserve Board regarding the timing of interest rate cuts. New York Fed President Williams supports a gradual rate cut, while Cleveland Fed President Hammack opposes a rate cut in September.

On Thursday, Fed "number three" Williams stated, "If economic developments meet expectations, lowering interest rates over time will be 'appropriate'." He emphasized that the Fed must maintain a "delicate balance" between supporting the labor market and controlling inflation, with current monetary policy remaining moderately tight.

2026 voting member Hammack reiterated her opposition to a September rate cut, arguing that inflation remains too high and is trending in the wrong direction. Additionally, she warned that "threatening the independence of the Fed is a threat to a low-inflation environment."

The market widely expects the Fed to restart its rate-cutting cycle at the policy meeting on September 16-17. The Fed's next policy direction will directly impact the U.S. economic outlook and global market liquidity.

Williams Supports Gradual Rate Cuts, Long-Term Inflation Manageable

As a key figure with permanent voting rights on the FOMC, New York Fed President Williams's remarks are particularly important.

Williams stated at a New York Economic Club event that monetary policy is currently at a "moderately restrictive" level, suitable for the current economic situation.

He believes that over time, moving interest rates toward a more neutral stance is appropriate. However, he did not specify the timing or pace of rate cuts, and Williams's comments were interpreted by the market as a key signal of an open attitude toward future rate cuts.

Williams stated that the Fed must now balance the risks of inflation and the labor market. The U.S. labor market is currently experiencing a "gradual cooling," consistent with the trend of economic slowdown. He expects the unemployment rate to rise to about 4.5% next year.

Williams acknowledged that there are clear signs that tariffs are affecting prices and purchasing patterns, and he expects tariffs to push inflation up by 1.0 to 1.5 percentage points this year.

However, he also pointed out that there has not yet been evidence of tariffs amplifying or creating second-round effects on broader inflation trends. Williams stated:

Long-term inflation expectations remain stable.

His baseline forecast is that core PCE will be between 3.0% and 3.5% this year, dropping to 2.5% by 2026, and returning to the 2% target in 2027.

Hammack Opposes Rate Cuts, Warns of Rising Inflation Risks

In contrast, Cleveland Fed President Beth Hammack presented a completely opposite view.

In a media interview, she explicitly stated her opposition to a September rate cut, emphasizing, "Inflation is still too high now, and we are moving in the wrong direction." The main reason is that inflation has been above the Fed's 2% target for about four consecutive years.

Hammack learned during a meeting with business and community leaders in the Cincinnati area that many business leaders remain concerned about inflation and the impact of the Trump administration's global tariff policies.

She stated that businesses are facing "significant pricing pressure" from suppliers, some of which are related to tariffs She expects inflation to rise further. Companies have been trying to keep prices low to maintain market share, but this situation will not last forever, and they may need to raise prices in the short term.

Central Bank Independence Faces Further Scrutiny

Beyond policy debates, the risk of erosion of the Federal Reserve's independence is drawing widespread attention.

Hammack warns that maintaining the political independence of the Federal Reserve is crucial for keeping inflation low for businesses and consumers. She emphasizes:

There is substantial evidence that having an independent central bank can achieve lower inflation outcomes in the medium to long term. If the independence of the Federal Reserve is threatened, that is a threat to low inflation.

She points out that there is a reason Federal Reserve officials do not participate in election cycles, allowing them to make medium to long-term decisions without short-term political pressure.

This concern was further exacerbated during the confirmation hearing for Federal Reserve Board nominee Miran.

Miran, nominated by Trump, stated at the Senate Banking Committee confirmation hearing that if confirmed for the board position, he would take a leave of absence without pay from his position as chairman of the White House Council of Economic Advisers, rather than resigning completely.

The term for this board position will expire on January 31, 2026. This move is widely seen as potentially giving the White House too much influence within the central bank, even posing a risk of acting as a "shadow chairman."

However, he repeatedly pledged during the hearing to uphold the independence of the central bank, emphasizing that no one in the government has asked him to commit to loosening monetary policy.