Last week, the Fed decided to cut interest rates and was almost unanimously in favor of it. But in just a week, there have been differences of opinion. Chairman Jerome Powell has maintained a cautious “wait and see” approach, weighing the risks of cutting too much or too little.
However, several other officials have stressed that the labor market is now a more serious threat than inflation. Stephen Miran, the new governor, has said they want rates cut by about 2 percentage points, arguing that current policy is too tight and risks increasing layoffs.
Miran, the only dissenting vote at the September meeting, has been using his influence to persuade his colleagues to be more dovish. Although previously seen as a minority voice, his views have caught the eye because they align with other concerns within the Fed.
Michelle Bowman also warned that the Fed risks falling short in protecting the labor market. She expects additional rate cuts in October and December, emphasizing the importance of maximum employment over controlling inflation.
Markets have also adjusted expectations, with the CME FedWatch showing a 94% probability of another cut this year. However, some officials remain cautious, concerned that excessive action could undermine the Fed's credibility in controlling inflation. This is a sign that internal divisions within the Fed are becoming clearer even though policy-making data has not yet been released.
