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Author: Li Dan, Wall Street News
The Fed’s cautious attitude towards further rate cuts is emerging.The latest statements of two Fed officials show that they believe there is limited room for continued easing, which has poured cold water on the prospect of continuing to move this year after the rate cut last week.
St. Louis Fed Chairman Alberto Musalem, who has the right to vote for the FOMC meeting of the Federal Reserve’s Monetary Policy Committee this year, said on Monday that he supported the rate cut last week, but there is limited room for further easing if the policy is not too loose.
Atlanta Fed Chairman Raphael Bostic, who had FOMC’s voting rights in 2027, said on the same day that he currently believes there is no reason to cut interest rates further this year due to concerns about inflation.Since then, Cleveland Fed Chairman Beth Hammack, who had the voting rights to the FOMC meeting in 2026, also expressed concerns about inflation, saying that he was very worried about inflation and must be cautiously easing to avoid overheating of the economy.
The common view of the three officials reflects the continued attention within the Fed to inflation risks.While labor market risks have risen, inflation that is above target for a long time remains the main concern of these policy makers.This position may affect the direction of interest rate policy in the Fed’s remaining two meetings this year.
The Federal Reserve decided to cut interest rates by 25 basis points last week, the first time since the beginning of this year. There was only one FOMC voting committee member – Milan, the new Fed director who advocated a 50 basis point cut, voted against the resolution.The dot chart released after the meeting showed that among the 19 Fed decision makers, 7 are expected to cut interest rates this year, while 10 are expected to cut interest rates by at least 50 basis points in total, that is, there are two interest rate cuts of at least 25 basis points.
Federal Reserve Chairman Powell said at a press conference after the meeting that the downward trend in employment has become a substantial risk; this is a risk-management rate cut; the 50 basis points interest rate cut has not received widespread support; the extremely rare economic situation has led to large differences in the Fed’s interest rate forecast.
Mousalem: The premise of further rate cuts is that inflation risk has not increased
St. Louis Fed Chairman Mousalem elaborated on his policy position in his speech at the Brookings Institution.He described last week’s rate cut as “a preventive move aimed at supporting a fully employed labor market and preventing further weakness.”Mousalem said:
“The monetary policy stance is now between modest restrictions and neutrality, which I think is appropriate. However, in the case of not overly easing the policy, there is limited room for further easing and we should (the rate cut) be cautious.”
Mousalem stressed that despite rising downside risks in the labor market, he remains concerned that inflation may continue to be above the Fed’s 2% target.He pointed out that stock market booms and low credit spreads continue to support the economy, and policy makers should act cautiously in this context.He said:
“If there are signs of further weakness in the labor market, I will support further reductions in policy interest rates, provided that the risk of inflation continuing to be higher than the target does not increase and long-term inflation expectations remain stable.”
Bostic: Worrying about inflation being too high for a long time, don’t think the job market is in crisis at the moment
Atlanta Fed Chairman Bostic expressed a similar caution in a media interview on Monday.According to the media, Bostic only expected a rate cut this year in his economic forecast for last week’s meeting, meaning he does not expect a rate cut in the remaining two meetings this year.He said
“I’m worried that inflation has been too high for a long time. So I won’t support rate cuts today, but we’ll see what happens.”
Bostic expects core inflation in the United States to rise to 3.1% from 2.9% in July by the end of the year, and the unemployment rate will rise slightly to 4.5%.He said he did not expect inflation to fall back to the Fed’s target of 2% by 2028.
Bostic believes that the risks of weak employment and rising inflation are more balanced, but he stressed that
It is not considered that “the labor market is in crisis at the moment”, “How weak it is still an open question.”
Bostic attributes about a third of the recent slowdown in hiring to labor supply restrictions.He expects these supply pressures to intensify due to about a year-long interval between immigration and obtaining a work permit.“The supply challenge will become even more severe.”
Hamak: Very worried about inflation and should be cautious and relaxed to avoid overheating of the economy
Hamak said she remains highly concerned about inflation and believes Fed officials should act cautiously when considering rate cuts to avoid overheating the economy.
Hamak pointed out that despite the recent slowdown in employment growth, the U.S. labor market remains strong, reflected in the low number of layoffs and low unemployment rates.She also said inflation has been above the Fed’s 2% target for four consecutive years, and it may still be difficult to return to this target in the coming years.She said:
“I think we should be very cautious in relaxing monetary policy restrictions,” Hamak said at a seminar held by the Federal Reserve Bank of Cleveland on Monday.“I’m worried that if monetary policy restrictions are relaxed, the economy may overheat again.”
Hamak said that after the Federal Reserve cut interest rates last week, the current monetary policy is only “slightly” restrictive, and interest rates are not far from the neutral level that neither stimulates nor suppresses economic growth.“I think the job situation is still good at the moment, but I’m very worried about inflation.”
Tariff and inflation outlook remains uncertain
Both officials mentioned the potential impact of tariffs on inflation.Mousalem said while the tariffs have had less impact on prices so far than expected, other factors appear to be pushing up inflation.He expects the price effect of tariffs to fade in the next two to three quarters, but Fed officials need to be wary of the second round of effects and the threat of sustained inflation.
“Whether inflation continues to be higher than the target is due to tariffs, slower labor supply growth or other reasons, monetary policy should continue to fight this sustainability,” Mousalem said.
Bostic noted that the tariff-driven cost rise is milder than originally predicted, partly because companies use various strategies to diversify or delay transmission to consumers.But these buffers may run out in the coming months, and the economy may avoid immediate sharp price increases, but will withstand more long-term mild price pressure.
