While Federal Reserve officials made it clear they intend to cut interest rates at their July 30-31 meeting, not all of the regional presidents are on board with this move.
Federal Reserve Bank of Boston President Eric Rosengren on Friday became the latest Fed official to speak out against a rate cut.
“Given that the growth in the economy is satisfactory, I think that’s an environment where you don’t have to take a lot of action,” Rosengren said in an interview on CNBC. He said the Fed should “react” if the economy changes, or to developments on trade, or surprises about further slowing of global economies, “but I think we should wait until we actually see the evidence that that’s happening.”
He said the economy is “doing quite well” and as long as that continues “we don’t need accommodation.”
Rosengren votes on the Federal Open Market Committee this year. He acknowledged the economy is slowing and since rates are closer to zero than they usually are in a slump, the Fed must “act aggressively,” but he’s “not convinced” recent data show that.
An insurance cut could create more problems than it solves, he suggested. Other than Rosengren, the only other president who may dissent is Kansas City’s Esther George. Atlanta’s Raphael Bostic and Richmond’s Thomas Barkin also seem to oppose a rate cut, but neither votes on the FOMC this year.
“As recently as the June FOMC meeting, just 8 of 17 participants had a ‘dot plot’ projection indicative of lower rates by the end of the year,” said Greg McBride, chief financial analyst for Bankrate.com. “But Fed communication has made it clear that a rate cut is coming and voting members have been public in guiding expectations in that direction. Not only can we expect a rate cut at month end, but the vote will almost assuredly be unanimous.”
Different “perspectives and views” are always welcome at the Fed. “Debate is healthy, groupthink is not — particularly at a time like this when the economic fundamentals aren’t weak enough to make the case for a rate cut,” he said.
A “common mistake investors make [is] thinking of the Fed as an ‘it’ rather than a ‘they,’” said Payden & Rygel Chief Economist Jeffrey Cleveland said. “They all have somewhat different views, particularly at key turning points. I doubt there is a consensus view among policymakers right now. As a result, we may see a dissent or two at this meeting (e.g., Rosengren).
It’s hard to make a data-based argument for rate cuts, according to Ball State University economist Michael Hicks, “I suspect the comments by FOMC members just before the blackout period are carefully designed to make clear that a rate cut is not based on evidence of worsening labor market conditions and the absence of inflation.”
Hicks noted credibility is important. “While there are surely big warning signs of a global recession, the dual mandate of the Fed is focused tightly on employment and inflation,” he said. “Raising rates now would seem to counter both the intent of Congress and 70 years of Fed policy.”
It’s possible he said, recent speeches were coordinated “to clarify the marginal case for loosening policy.”
With President Trump offering “highly irresponsible statements” on monetary policy, it “simply magnifies the difficulty in carefully communicating future intentions to market actors around the world.”
Manufacturing
The only data released Monday was the Chicago Fed National Activity Index which narrowed to negative 0.02 in June from negative 0.03 in May, suggesting the economy is growing near trend. The three-month moving average, CFNAI-MA3, was at negative 0.26 in June after a negative 0.27 reading in May.
