"Cautious Rate Cuts" vs. "Accelerated Rate Cuts": Ticket Committee Faces Off! The Federal Reserve's Rate Cut Narrative Deeply Divided

According to the Zhitong Finance APP, Austan Goolsbee, the Chicago Federal Reserve Chairman who has long favored a "dovish" monetary policy stance, stated on Tuesday that given inflation remains above the Federal Reserve's target and shows an upward trajectory, the Federal Reserve should maintain a cautious stance on further rate cuts rather than taking an aggressive path. Almost simultaneously, Federal Reserve Governor Michelle Bowman indicated that given the rapid weakening of the U.S. non-farm labor market, FOMC decision-makers risk falling behind the economic situation and need to take decisive action to lower interest rates. Their latest remarks convey a similar message to last week's dot plot, highlighting significant internal divisions within the Federal Reserve regarding the outlook for interest rates.

Both Goolsbee and Bowman are voting members of the Federal Reserve FOMC for 2025, with Bowman holding permanent voting rights on monetary policy during her term as a Federal Reserve Governor, while Goolsbee, as a regional Federal Reserve Chairman, may not have voting rights on FOMC monetary policy until 2027.

Additionally, Beth Hammack, the Cleveland Federal Reserve President and a voting member of the FOMC for 2026, stated on Monday that given inflation remains above the Federal Reserve's 2% target and persists, the Federal Reserve needs to be "very cautious" in lifting restrictive monetary policies, further underscoring the divisions within the Federal Reserve on whether to continue cutting rates.

"Ultimately, if we can completely dispel this stagflation-like dust and proceed at a more gradual pace, future interest rates could decline significantly," Goolsbee said in an interview with CNBC on Tuesday. "However, considering that inflation has been above the Federal Reserve's anchored target for four and a half years and is still rising, I believe we need to act cautiously and not be overly aggressive as some expectations suggest."

The Federal Reserve officials lowered interest rates by 25 basis points at last week's FOMC monetary policy meeting, marking the first rate cut since December 2024. According to the median forecast in the dot plot released after the meeting, FOMC decision-makers are expected to announce two more rate cuts this year, each by 25 basis points.

The Federal Reserve's first rate cut in nine months, both the magnitude and timing of the action undoubtedly align with market expectations. The market's focus on the FOMC dot plot indicates that the median value of interest rate forecasts suggests the Federal Reserve will cut rates three times this year, an increase of one from the last FOMC dot plot, with another cut expected next year.

However, the specific predictive data in the dot plot indicates that future Federal Reserve rate decisions may provoke greater divisions: among the 19 Federal Reserve officials, 7 expect no further rate cuts this year, while another 2 support only one more cut. In other words, if not for the low expectations set by the newly appointed Federal Reserve Governor Milan, nominated by Trump, which pulled down the average, the "dot plot" based on the median outcome is essentially evenly matched for one or two more cuts this year. Moreover, most Federal Reserve officials believe that given the current robust outlook for the U.S. economy (even if slightly slowing), there is no need for further significant rate cuts next year.

Powell also mentioned in the press conference that he believes the transmission of tariffs to inflation will continue into next year, although the speed of transmission to consumers is slower than the market expects. More importantly, Powell explained at the press conference that this rate cut is a "risk management" cut aimed at adjusting monetary policy from the previously "moderately tight" relatively harsh level to a more neutral position, emphasizing that the Federal Reserve will maintain a "meeting-by-meeting decision-making" approach in the future According to the latest data, policies will be flexibly adjusted.

Goolsbee stated in his speech that the current monetary policy is "slightly tight." He also mentioned that the Chicago Fed's analysis of the labor market shows it is currently stable, despite a slowdown in hiring, but layoffs remain relatively stable.

Federal Reserve Governor Michelle Bowman also stated on Tuesday that, given the weakening labor market, there is a risk that Federal Reserve policymakers may lag behind economic conditions and need to take decisive monetary policy actions to lower the benchmark interest rate.

Additionally, as the highest-ranking banking regulatory official at the Federal Reserve, Bowman warned that the FOMC needs to lower the benchmark interest rate more quickly in the coming months.

"Since we have seen the labor market conditions deteriorate for several months, now is the time for the committee to take decisive, forward-looking action to address the declining vitality of the labor market and the emerging signs of weakness," Bowman said in her prepared remarks at the Kentucky Bankers Association annual meeting.

"In my view, recent data, especially the benchmark revisions for non-farm employment, indicate that we are at serious risk of lagging behind the situation in responding to the deterioration of the labor market," Bowman stated. "If these conditions persist, I am concerned that we will need to adjust monetary policy at a faster pace and to a greater extent."

Bowman indicated in August that she supports three rate cuts this year and has been urging other policymakers to begin cutting rates since the June meeting. Her remarks came a day after the speech of the Federal Reserve's newly appointed Governor Stephen Miran, who advocated for significant rate cuts—Miran suggested two consecutive 50 basis point cuts to prevent high rates and the ongoing weak labor market from causing severe damage to the U.S. economy.

Bowman expressed increased confidence that the impact of tariffs on inflation will be "small and transitory." She also cautioned against overemphasizing the latest data points, stating that this could hinder the policymaking process.

"A strict interpretation of the data is inherently retrospective and will ensure that we are always lagging behind the situation, necessitating excessive corrections in the future," Bowman stated. "I believe we should consider shifting our focus from over-weighting the latest data to a more proactive forward-looking approach and forming a forecast that reflects how the economy may evolve in the future."