Should the Fed pay more attention to inflation? At least three central bankers think so

The Fed has stopped too early in its fight against inflation, according to an increasingly vocal group of Fed officials.

Three Federal Reserve officials said Friday that they disagree with the Federal Open Market Committee’s decision to cut its benchmark interest rate by a quarter point this week. One member, Kansas City Fed President Jeffrey Schmid, voted to keep interest rates steady but was overruled.

His counterparts, Beth Hammack of the Cleveland Fed and Lori Logan of the Dallas Fed, participated in the Federal Open Market Committee meeting but are not voting members this year. (The 12-member Federal Open Market Committee gives voting power to four of the Fed’s 11 regional chairs on a rotating basis.)

The dissenting statements illustrate the dilemma facing the central bank. The Fed is charged with the dual mission of keeping inflation stable and employment rates high. Pressures on both sides of the mandate are pulling the central bank in opposite directions with respect to the benchmark interest rate.

Inflation has exceeded the Fed’s target at an annual rate of 2% for more than four years, and tariffs are pushing it in the wrong direction, which the Fed typically addresses by raising interest rates. Meanwhile, President Donald Trump’s trade wars are fueling uncertainty that has dampened job growth and raised fears of rising unemployment, which the Fed is addressing by cutting interest rates.

Fed members disagree about the most pressing problem the Fed needs to address, because it can’t do both at once. Federal Reserve Chairman Jerome Powell said Wednesday that there were “strongly different views” among participants at the Federal Open Market Committee’s two-day policy meeting this week.

“I would have preferred to keep rates steady at this meeting and not cut rates,” Hammack said during a conversation in Dallas. “We are facing challenges on both sides of the mandate. We have inflation, which is very high. It is about a percentage point higher than our target, and it has been there for a long period of time.”

Speaking in the same conversation, Atlanta Fed President Rafael Bostic said he was also concerned about inflation, but was persuaded to vote for a cut because he believes the current level of the federal funds rate, which ranges from 3.75% to 4%, is still high enough to discourage lending and restrict economic activity. The federal funds rate directly affects borrowing costs for short-term loans.

Schmid said in a statement that he would have preferred to keep interest rates steady.

“In my assessment, the labor market is largely balanced, the economy is showing continued momentum, and inflation remains very high,” he said.

Dallas Federal Reserve Bank President Lori Logan agreed.

“I would have preferred to keep interest rates steady at the FOMC meeting this week,” she said at an event in Dallas, according to prepared remarks. “Congress has given the FOMC a dual mandate: to strive for maximum employment and stable prices. The labor market remains balanced and slowly cooling. Inflation remains too high, taxing corporate and household balance sheets, and appears likely to exceed the FOMC’s 2% target for longer than it should. These economic forecasts have not called for lower interest rates.”