Internal Disagreements Intensify Within the Federal Reserve: Three Officials Concerned About Inflation, Publicly Oppose Interest Rate Cut This Week

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The resistance facing the Fed's interest rate cut decision this week is surfacing. On the same day, three Fed officials publicly stated that they do not support the Fed’s interest rate cut decision this week, confirming the warning Fed Chairman Powell quickly issued after announcing the rate cut on Wednesday—that a further rate cut in December is far from guaranteed.

Before the U.S. market opened on Friday the 31st, Dallas Fed President Lorie Logan and Cleveland Fed President Beth Hammack both said they preferred to keep rates unchanged. Kansas City Fed President Jeff Schmid had earlier issued a statement detailing his reasons for voting against the decision at this week’s FOMC meeting.

These remarks suggest that within the next six weeks before the next monetary policy meeting on December 9-10, there will be intense debate within the Fed over whether to continue cutting rates. One side believes that further policy easing is needed to support the labor market, while the other is more concerned about inflation. Market expectations for a rate cut in December cooled sharply on Friday; early in the U.S. session, the three major stock indexes trimmed their gains due to a slew of hawkish remarks from Fed officials.

After Friday’s U.S. session, Chris Waller, a Fed governor with permanent voting rights in the FOMC, also spoke out, further fueling the debate about the timing of rate cuts. He said:

"Our biggest concern right now is the labor market. We know inflation will come down, so I still support a December rate cut, as all the data indicates that's what we should do."

The FOMC meeting just ended this Wednesday decided to cut rates by 25 basis points for the second consecutive time. A WallstreetCN report noted that out of the 12 voting members of the FOMC, two opposed the decision at the time. Trump-appointed governor Stephen Miran once again advocated a 50 basis point cut, while Schmid opposed because he supported holding steady, reflecting a clear division at the top of the Fed.

Three Officials Speak Out Against Rate Cuts

Logan said at a meeting in Dallas:

"I don't think a rate cut was needed this week."

"Unless there is clear evidence that inflation will fall faster than expected or the labor market will cool more rapidly, it will be hard for me to support another rate cut in December."

Schmid stated in his remarks:

"In my assessment, the labor market is basically balanced, the economy shows continued momentum, and inflation remains too high."

Hammack, speaking in a panel discussion with Atlanta Fed President Raphael Bostic, noted she believes the latest rate cut has brought the federal funds target range to 3.75%–4%, "right around" her estimate of the neutral rate.

Hammack said:

"I do think we need to maintain some degree of (monetary policy) restrictiveness to help bring inflation back to target."

Although Logan and Hammack don’t have FOMC voting rights this year, both will rotate in as voting members in 2026. Thus, the FOMC voting results released in the statement this week do not reflect Logan and Hammack's stance. Their remarks Friday show that they, like Schmid, stand in the opposing camp.

Nick Timiraos, a veteran Fed reporter dubbed the "New Fedwire," pointed out Friday that Logan was one of 11 candidates interviewed by U.S. Treasury Secretary Bessent for the next Fed chair, but she did not make it to the second round.

Neutral Rate Assessment Becomes Focal Point

Officials’ differing assessments of the so-called neutral rate have become the core of the debate. The neutral rate refers to the theoretical policy rate that neither stimulates nor restrains economic growth. Forecasts released in September showed the committee’s neutral rate estimates ranged from slightly above 2.5% to just below 4%.

Hammack believes that current rates are near her estimate of neutral, so some restrictiveness should be maintained.

Bostic, who will have FOMC voting rights in 2027, said he "ultimately supported" the rate cut decision because even after the cut, monetary policy was still "in restrictive territory." But he also said: "We can’t forget that inflation is a major issue and must be brought back to the 2% target. With each step, we’re approaching neutrality in a way that makes me uneasy."

On Wednesday, Powell said his own assessment is that policy is still "somewhat restrictive," but he acknowledged rates are now in the "3%–4% area that many neutral rate estimates occupy."

December Rate Cut Outlook Unclear

At the FOMC press conference on Wednesday, Powell said: "There is a growing sense that maybe we should at least pause once" before considering another rate cut. This comment led to a sharp adjustment in the bond market that day; previously, investors were almost certain of another 25 basis point rate cut in December.

Matthew Luzzetti, Chief U.S. Economist at Deutsche Bank Securities, said: "I think Powell faces more resistance to a December rate cut than he does to pausing rate cuts, which is one reason he seemed so hawkish."

Luzzetti said that as more Fed officials make public comments in the next week or two, the market will have a better understanding of this.

By Friday’s close this week, the CME’s tool showed the probability the Fed will cut rates by another 25 basis points at the December meeting had dropped to below 69%, from nearly 73% the day before and about 92% a week earlier.

Balance Sheet Reduction Nears End

The Fed also announced Wednesday it would end its three-year balance sheet reduction (quantitative tightening) program on December 1, after short-term money market rates have risen in recent weeks. Logan voiced support for this on Friday, believing the move should help relieve funding pressure.

The Fed said it would continue to reduce its holdings of mortgage-backed securities and reinvest proceeds into Treasuries, but did not announce additional liquidity measures to help ease funding costs.

Logan said: "Once the balance sheet reduction ends, the Fed may further reduce reserve supply by maintaining assets at existing levels for a period and allowing reserves to decline to offset other trend growth in liabilities, such as currency. But if the recent increase in repo rates is not temporary, I think the Fed will need to start buying assets to prevent reserves from falling further and to maintain an ample supply of reserves."

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