US Fed fractures deepen as Barr signals inflation concern
Investors now see about a 40% probability of a rate cut at the December meeting, according to pricing in futures contracts
[WASHINGTON] Add one more to the number of US Federal Reserve officials signalling fresh discomfort over inflation.
Fed governor Michael Barr on Thursday (Nov 20) said that the US central bank needs to proceed with caution in considering additional interest-rate cuts.
“I am concerned that we are seeing inflation still at around 3 per cent and our target is 2 per cent, and we are committed to getting to that 2 per cent target,” Barr said. “So we need to be careful and cautious now about monetary policy, because we want to make sure that we’re achieving both sides of our mandate.”
Barr stopped short of declaring his opposition to another rate cut, but his unease over stalled inflation will further complicate the job of chair Jerome Powell as he tries to forge a consensus among a fractured group of policymakers in time for their Dec 9 to 10 gathering in Washington.
Investors now see about a 40 per cent probability of a rate cut at the December meeting, according to pricing in futures contracts.
Barr supported the Fed’s cuts in September and October but had so far given no signal on December. His vote could prove pivotal as several of his colleagues have already declared that they favour or oppose a third straight rate reduction, making the outcome uncertain.
The Fed is, after a long government shutdown, finally receiving new official data, but so far it has not done much to resolve the division among policymakers. The September jobs report, released on Thursday by the Bureau of Labor Statistics, offered a mixed picture. Employers added 119,000 net new jobs, the best number since April, but August figures were revised downward and the unemployment rate rose slightly to 4.4 per cent.
Following the release, Barr said that he sees the labour market “kind of cooling”, with the economy creating jobs near the so-called break-even pace that keeps unemployment steady.
Also speaking on Thursday, Cleveland Fed president Beth Hammack called the September jobs data “stale” and reiterated her opposition to additional rate reductions. She also said cutting rates could threaten financial stability.
“Lowering interest rates to support the labour market risks prolonging this period of elevated inflation, and it could also encourage risk-taking in financial markets,” Hammack said on Thursday. “This means that whenever the next downturn comes, it could be larger than it otherwise would have been, with a larger impact on the economy.”
At a separate event in Indianapolis, Chicago Fed president Austan Goolsbee signalled he’s still apprehensive about delivering another rate cut in December.
Inflation “seems to have kind of stalled out and, if anything, given warnings of going the wrong way”, Goolsbee said. “So that makes me a little uneasy.” BLOOMBERG
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