Two Federal Reserve officials adopt a hawkish stance: the job market is stabilizing but inflation remains high, and hopes for a rate cut in December are slim

Jeff Schmid, president of the Federal Reserve Bank of Kansas City, voted against the Federal Reserve's decision to cut interest rates this week, believing that this move could undermine the Fed's efforts to achieve its 2% inflation target amid ongoing inflationary pressures.

Federal Reserve officials voted on Wednesday to lower the benchmark interest rate by 25 basis points, marking the second rate cut in two months. However, Schmid stated in a statement on Friday that he cast his dissenting vote due to concerns that economic growth and investment would exert upward pressure on inflation.

Schmid noted that as of September, the year-on-year Consumer Price Index (CPI) remained as high as 3%, and the inflation rate has been above the Fed's 2% target for more than four consecutive years:

“I am concerned that if the Fed's commitment to its 2% inflation target is called into question, then the rate cut could have a more lasting impact on inflation.”

Meanwhile, Dallas Fed President Logan also stated in an interview on Friday that he finds it “difficult to see another rate cut in December.”

Schmid: Labor Market Stabilizing but Inflation Still High

Schmid's assessment of the current U.S. economy also supports his hawkish stance. He believes that “the labor market is generally balanced, the economy shows sustained momentum, and inflation remains too high.”

He added that businesses in his district generally report that costs are still rising. In his view, current monetary policy should “tend to suppress demand growth” rather than stimulate it further. Schmid believes that the current financial market environment is accommodative, and monetary policy is only at a “moderately restrictive” level, which further reinforces his vigilance regarding inflation risks.

Regarding the labor market pressures that the rate cut aims to address, Schmid has a different perspective. He stated, “I do not believe that lowering the policy rate by 25 basis points will effectively address the pressures in the labor market, which are more likely to stem from structural changes in technology and demographics.”

Logan: Diminished Hopes for Rate Cuts in December

Schmid's dissenting vote is his first since joining the Federal Reserve in 2023 and becoming a voting member of the FOMC for the first time this year. This action, along with Miran's differing opinion, reveals the growing rift within the Federal Reserve.

Dallas Fed President Logan also stated in an interview on Friday that the Fed's rate cut in September has alleviated employment risks. He had hoped to keep rates stable this week:

“I find it difficult to see another rate cut in December.”

Logan indicated that if the repurchase rate remains high, the Fed will need to purchase assets. There may still be room for a further moderate decline in reserve levels. He expressed disappointment at seeing the tri-party repurchase rate exceed the SRF rate. It is time for the Fed to modernize its policy rate framework. The scale and timing of asset purchases should not be mechanical