7 months ago
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Two Federal Reserve officials explained why they were in favor of reducing interest rates by a jumbo 50 basis points instead of a smaller first cut, citing progress on inflation and a cooling job market.
Those twin developments "have emerged much more quickly than I imagined at the beginning of the summer," Atlanta Fed president Raphael Bostic said in a speech.
"In this moment, I envision normalizing monetary policy sooner than I thought would be appropriate even a few months ago."
Minneapolis Fed president Neel Kashkari said in an essay Monday that he voted in favor of cutting by 50 basis points because "the balance of risks has shifted away from higher inflation and toward the risk of a further weakening of the labor market, warranting a lower federal funds rate."
Bostic and Kashkari became the latest Fed policymakers to outline their specific votes for Fed's first cut since 2020 and rationales for going with the bigger cut.
Fed Chair Jerome Powell, in a press conference with reporters last Wednesday, argued the larger 50 basis point cut was an attempt to get ahead of a cooling job market now that inflation is on its way down.
The lone dissenter to the Fed's policy decision, Federal Reserve governor Michelle Bowman, said Friday that "a smaller first move in this process would have been a preferable action" because inflation is still not down to the central bank's 2% target.
"I see the risk that the Committee’s larger policy action could be interpreted as a premature declaration of victory on our price stability mandate," Bowman said in a statement.
Bowman was the only member of the Fed to dissent in last Wednesday’s policy decision, saying she preferred a smaller cut of a quarter percentage point instead of a half percentage point. She was the first to do so in two years and the first Fed governor to dissent since 2005.
It is clear the decision last week was a close call for other Fed officials, too.
Bostic acknowledged that during his remarks Monday, saying he feels the Fed hasn't declared victory over inflation yet. That residual concern might have led him to trim by 25 basis points, but that would have ignored a recent cooling in the job market.
"The path of inflation in 2024 has been choppy, and the unpredictable nature of rents and housing prices still worries me," he said. "I will not be comfortable claiming victory if we stall short of our inflation goal."
The Fed will get a new reading from its preferred inflation measure, the Personal Consumption Expenditures Price Index (PCE) this Friday.
