Two Fed voting members: Support keeping interest rates unchanged unless there is substantial weakness in the U.S. labor market

On Tuesday local time, two Federal Reserve voting members spoke out this year, both leaning hawkish, stating that interest rates may remain unchanged for a longer period unless there are new and substantial signs of weakness in the U.S. labor market, in order to avoid re-accelerating inflation.

President of the Cleveland Fed: Interest rates may remain unchanged for a long time

Cleveland Fed President Beth Hammack recently stated that as Federal Reserve officials assess continuously released economic data, interest rates may stay unchanged for a relatively long period.

Hammack said on Tuesday: "Rather than trying to fine-tune the federal funds rate, I am more inclined to exercise patience, observing the economy while evaluating recent effects of rate cuts. According to my forecast, we may remain on hold for quite a long time."

Hammack has repeatedly urged her colleagues on the Federal Open Market Committee (FOMC) to be cautious about rate cuts, to avoid re-stoking inflation. She supported last month’s decision to keep rates unchanged after three consecutive rate cuts at the end of 2025.

Hammack shared a "cautiously optimistic" outlook, saying fiscal support, lower rates, and other factors will drive U.S. economic growth, thereby boosting the labor market. She expects inflation to ease somewhat this year.

Hammack emphasized that if the economy performs worse than expected, Fed officials need to remain flexible in their policy responses; she also said she is open to further rate hikes if necessary. "At present, the risks of the federal funds rate going higher or lower are roughly balanced. History tells us that flexibility is beneficial."

Hammack also emphasized the importance of the Fed’s independence, which enables officials to make tough policy decisions aimed at long-term economic stability:

In her speech, Hammack mentioned the late former Fed Chair Paul Volcker. After inflation spiraled out of control in the 1970s, Volcker successfully subdued high inflation by sharply raising interest rates and triggering a recession.

During her Q&A session, Hammack said: "Maintaining independence is crucial so that we can make those tough trade-offs when necessary. Because sometimes, to maintain low inflation in the long term, we must endure short-term pain."

Dallas Fed President supports keeping rates unchanged

Dallas Fed President Lorie Logan also said on Tuesday that unless there are new and substantive signs of weakness in the labor market, interest rates should remain unchanged. "In the coming months, we'll see whether inflation is falling toward our target and whether the labor market can remain stable." Logan is optimistic about further inflation easing.

Logan said: "If that's the case, it will show that our current policy stance is appropriate, and we can achieve our dual mandate goals without further rate cuts. If, on the other hand, inflation falls while the labor market cools further and significantly, then another rate cut might become appropriate."

Logan said she supported the FOMC’s decision at the January meeting to keep rates unchanged after three consecutive rate cuts at the end of 2025. She had previously publicly opposed rate cuts in October and December, citing persistently high inflation and a labor market in equilibrium.

On Tuesday, Logan reiterated her stance. She said that in the past six months or so, hiring rates have approached her research team's estimated "break-even" rate—where job creation matches population growth; meanwhile, she also admitted she was "not fully convinced inflation is on a clear path down to the 2% target."

Before becoming Dallas Fed President, Logan managed the central bank’s asset portfolio at the New York Fed. She also discussed the Fed’s recent actions regarding its balance sheet.

At the end of last year, with government borrowing rising and the Fed’s reduction in bond holdings, money market volatility increased significantly, and cash reserves in the financial system were drained. To ease this pressure, the Fed expanded its balance sheet again, buying about $110 billion in Treasury securities since December 12.

Logan said this process is technical and unrelated to the monetary policy stance itself, and should not be operated in a mechanical fashion. She said: "Reserve demand may change over time with economic growth, changes in banking and payment business, as well as adjustments in regulatory and supervisory environments. To maintain efficiency, the scale of reserves we supply needs to be broadly adjusted upward or downward in response."

She added that if the Fed maintains sufficient reserves in the banking system, money market rates (such as the general collateral repo rate) should, over the long term, be close to the rate on reserve balances.

Logan further called on the Fed to provide centrally cleared transactions through the Standing Repo Facility, and praised the high usage rate of this tool at the end of 2025, calling it an "encouraging signal."

Intensive release of U.S. economic data

Fed officials have recently been encouraged by easing inflation data and signs of stability in the unemployment rate, but new data to be released this week may challenge these judgments. The delayed release of January employment data due to the recent government shutdown will come out Wednesday, and the next Consumer Price Index (CPI) report is expected on Friday.

According to data released earlier Tuesday by the U.S. Department of Commerce, retail sales in December last year were weaker than expected, with eight out of thirteen categories showing a decline.

U.S. President Trump has insisted he wants the next Fed chair to lower rates. This week, he said his nominee to replace Powell, Kevin Warsh, is capable of achieving 15% economic growth, highlighting the significant political pressure Warsh would face if confirmed.

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