Uncertainty is growing as Fed officials disagree on interest rate cuts

If another rate cut in December is not certain, the barrage of Fed spokesmen this week is a clear indication why.

It appears that some Fed officials have not yet decided whether they will cut interest rates again next month, as many in financial markets expect them to do. Two others appear reluctant to cut again, while President Donald Trump’s newest appointees continue to push for more action.

Fed officials are “all over the place” in their communications, Andrew Brenner, vice chairman of NatAlliance Securities, wrote to clients. He still believes the Fed will cut interest rates at its next meeting on December 9-10, though he noted continued uncertainty from the federal government shutdown, now in its 38th day.

“There’s a lot of ground to go over the next five weeks, with or without government data,” Brenner said, adding that the Fed’s message was “confusing.”

The lack of data was evident on Friday, which was the second month without an official US jobs report. Fed officials rely more on private sector data, but they lack full visibility.

The cloudy picture increases Fed officials’ caution about a rate cut in December.

The data blackout “makes me more concerned” about a federal funds rate cut soon, Chicago Fed President Austan Goolsbee told CNBC on Thursday. It’s easier to see in real time whether the labor market is faltering, he said, as alternative labor market indicators should pick up on the tension. However, official inflation data is difficult to replace.

“When it’s foggy, let’s be a little careful and slow down,” Goolsby told CNBC.

Fed Governor Stephen Meiran, Trump’s latest appointee to the central bank, continued to push for faster action in an interview with Yahoo Finance. He said he was more “optimistic” on inflation than other Fed officials, and that higher-than-required rates pose “unnecessary risks” to the labor market.

The mixed messages are consistent with Fed Chairman Jerome Powell’s description last week of “wildly different views” within the central bank.

“Further rate cuts at the December meeting are not a foregone conclusion – far from it,” Powell said in his opening remarks at a news conference.

Inflation is still a risk

The caution about a cut — whether in December or in 2026 — is partly because inflation remains above the Fed’s 2% target.

The Fed cut interest rates in September and October as the labor market appeared to be weakening, putting its goal of full employment at risk. The Fed’s other goal is to keep inflation stable — which now means ensuring it can fully return to 2% after prices rise post-pandemic.

Inflation remains too high and “headed in the wrong direction,” with some indicators approaching 3%, suggesting the momentum to lower inflation has stalled, Cleveland Fed President Beth Hammack said Thursday.

“I remain concerned about rising inflation and I think policy should be tilted against it,” Cleveland Fed President Beth Hammack said at an Economic Club of New York event on Thursday, adding that “it is not clear to me that monetary policy should do more at this time.”

She said that strong data on economic growth indicates “we are in a very strong and healthy economy right now,” objecting to more support from the Federal Reserve.

She pointed to the risk of the unemployment rate rising slightly amid the continued decline in the labor market. But she said the “biggest mistake” in the Fed’s dual mandate was about inflation, not employment.

“It’s a challenging time for policymakers,” Hammack said.

Some officials are neutral

Hammack will not vote at FOMC meetings this year, although she will rotate the voting spot in 2026. Another, more hawkish FOMC member, Kansas City Fed President Jeffrey Schmid, voted to keep interest rates unchanged last week.

Other officials appeared to be on the sidelines in December. Federal Reserve Governor Philip Jefferson, for example, said he is sticking with his one-by-one approach ahead of the Federal Open Market Committee meeting next month.

“This approach is particularly wise because it is unclear how much official data we will have before our meeting in December,” he said.

San Francisco Federal Reserve Bank President Mary Daly said Monday that she would “remain open-minded” about December, according to Reuters.

Meanwhile, St. Louis Fed President Alberto Muslim noted that the Fed’s cuts were “appropriate” because they provided “insurance” against the risk of rising unemployment. However, he also noted that inflation remains above the Fed’s 2% target.

“We have to be very careful in continuing to rely on inflation above the target level, while continuing to provide some insurance to the labor market,” Muslim said at a Fixed Income Analysts Association event.