Dissenting Fed officials tie votes to labor market concerns

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2 days ago

By Michael S. Derby
(Reuters) -The two Federal Reserve governors who favored an interest rate cut at the U.S. central bank's policy meeting this week said on Friday they did so largely due to rising concerns about the job market, amid expectations that any price increases related to trade tariffs will not lead to lasting price pressures.
"With economic growth slowing this year and signs of a less dynamic labor market, I saw it as appropriate to begin gradually moving our moderately restrictive policy stance toward a neutral setting," Vice Chair for Supervision Michelle Bowman said in a statement. "In my view, this action would have proactively hedged against a further weakening in the economy and the risk of damage to the labor market," she said.
Governor Christopher Waller said in a separate statement that "with underlying inflation near target and the upside risks to inflation limited, we should not wait until the labor market deteriorates before we cut the policy rate." Waller said the job market is nearing stall speed and the Fed's rate target should be closer to its neutral level.
Waller said of the Fed's broader approach to monetary policy right now that "I believe that the wait and see approach is overly cautious, and, in my opinion, does not properly balance the risks to the outlook and could lead to policy falling behind the curve."
The policymakers weighed in after casting dissenting votes against the Federal Open Market Committee's decision on Wednesday to hold its benchmark interest rate in the 4.25%-4.50% range. The dissents marked the first time that many governors had opposed the Fed's consensus view since late 1993.
Comments made by Waller and Bowman going into the meeting had led many observers to expect their dissents.
Waller has been most explicit in arguing for lower rates, saying the risks are rising for the job market while tariff-related inflation increases are likely to be a one-time shift the Fed could ignore. Bowman also expressed skepticism that tariffs would cause sustained inflation problems.
The dissents also garnered interest because of the broader political currents buffeting the Fed. President Donald Trump has been pushing aggressively for rate cuts, excoriating Fed Chair Jerome Powell for failing to heed the White House's demands. Waller, who noted last month that his view was not "political" is widely considered to be in the running to succeed Powell when his term expires next May.
Bowman, who was recently elevated to the Fed's bank overseer role by Trump, had previously been on the more hawkish end of the monetary policy spectrum, having dissented last fall in favor of a smaller rate cut than what the Fed delivered.
Nodding toward the potential ambitions of the dissenters, Michael Feroli, chief U.S. economist at JP Morgan, described their votes on Wednesday as "two job applications attached" to the FOMC statement, even as he noted, "we don't read too much into these dissents for the future direction of policy."
'GOOD MEETING'
As for the rest of the Fed's policymakers, they voted in favor of holding rates steady because even as some risks to the outlook are emerging, they are still wary of what Trump's tariffs will do to price pressures.
"The economy is in a solid position" and "for the time being, we're well positioned to learn more about the likely course of the economy and the evolving balance of risks before adjusting our policy stance," Powell said at a press conference on Wednesday after the end of the Fed's two-day policy meeting.
Powell appeared to see no downsides to the dissents.
He described the FOMC gathering as a "good meeting" and added, "what you want from everybody, and also from a dissenter, is a clear explanation of what your thinking is and what are the arguments you're making ... We had that today."
Powell did not indicate whether the dissenters had moved the consensus. "We haven't made any decisions about September. We'll be monitoring all the incoming data and asking ourselves whether the federal funds rate is in the right place."
The Fed's next policy meeting is scheduled for September 16-17.