Fed Split Over December Rate Reduction: Employment Concerns Versus Inflation Targets
- Fed President Mary Daly advocates for a December rate cut to preempt sudden U.S. labor market deterioration, prioritizing job market risks over inflation. - Officials like Susan Collins and Christopher Waller show divided stances, with some favoring rate cuts as insurance against weakness while others urge caution to avoid limiting future flexibility. - The debate reflects broader FOMC tensions between stabilizing employment and curbing inflation, amid softer tariff-driven costs and a fragile "low-hiring
Mary Daly, President of the San Francisco Federal Reserve, has become a prominent supporter of lowering interest rates at the central bank’s December 9-10 session, pointing to increasing threats of a sudden downturn in the U.S. employment landscape. Speaking with the Wall Street Journal, Daly cautioned that the labor market could experience an abrupt shift, remarking that “it’s currently fragile enough that a sudden, nonlinear change is a real possibility”
Daly’s approach differs from that of some other Fed officials, who remain more concerned about inflation. For example, Susan Collins, President of the Boston Fed, has advocated for holding rates steady, arguing that the job market is “slowing, but not at a rapid pace”
While Daly recognized that inflation is still a concern, she argued that the risks posed by a weakening labor market are more pressing than persistent price increases. She cited lower-than-anticipated tariff-related costs as a reason for easing inflationary pressures,
This discussion is unfolding against a backdrop of economic fragility. Daly described the current labor market as being in a “low-hiring, low-firing” balance, but warned that any increase in layoffs or slowdown in hiring could worsen the situation. She emphasized that the Fed can still reach its inflation target without causing higher unemployment, labeling any inability to do so a
Political dynamics add another layer of complexity to the Fed’s decision-making. President Donald Trump has openly called for more aggressive rate reductions and promised to select a chair who would focus on lowering rates. Nonetheless, internal disagreements indicate that even with unified leadership, reaching consensus could remain difficult.
With the FOMC meeting drawing near, investors will closely watch the Fed’s Beige Book and upcoming economic data for signals. Waller cautioned that the outcome in January might depend on a “wave” of postponed economic releases,
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Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.
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