There seems to be a lack of unified thought about interest rates among Central Bank leaders, according to a report in Investopedia.
The publication said that when three members of the Federal Reserve’s policy committee talked about interest rates last week, they had three different opinions about where interest rates should go. It was illustrative of how The Fed has been caught between the necessity to keep rates higher for longer to battle inflation, and lowering them to prevent the sluggish job market from collapsing, Investopedia said.
Here’s where their thinking was:
Beth Hammack, president of the Federal Reserve Bank of Cleveland, said she preferred to keep the Fed’s key interest rate higher for longer to push down inflation that continues to run running above the Fed’s goal of a 2% annual rate.
Chicago Fed President Austan Goolsbee thinks rates could come down significantly next year, but that he had opposed the rate cut the Fed made last week because he wanted to see more data first.
Anna Paulson, president of the Federal Reserve Bank of Philadelphia, said inflation would likely ebb next year and that she saw greater risks to the labor market.
Keeping Inflations Low and Employment High
Investopedia said their comments were the first from Fed officials since the so-called “blackout period” surrounding the Fed meeting on Dec. 10, in which officials don’t publicly discuss interest rates. The diverse opinions reflect the difficulty of the Fed’s balancing act as it pursues its dual mandate from Congress to keep inflation low and employment high.
Investopedia said that tariffs have driven consumer prices up and fueled an uptick of inflation in recent months and pushing it farther away from the target. The Fed usually responds to rising inflation by raising its key interest rate, which increases borrowing costs on loans and discourages spending.
The job market has been struggling, meanwhile, partly because of tariff-related disruptions, and Fed officials have become increasingly concerned about the risk of a wave of unemployment. Investopedia said that the Fed can counteract job slumps by lowering rates, and that’s what it has done at its last three meetings.
Fed officials must reconcile whether interest rates are “restrictive,” meaning rates are high enough to be a drag on the economy and inflation, Investopedia said. Officials are hoping to ensure the rates are “neutral,” and that they neither hinder the economy nor boost it with easy money.
“Right now, we’ve got policy that’s right around neutral,” Hammack said Friday during an event in Cincinnati, Bloomberg reported. “I would prefer to be on a slightly more restrictive stance to help continue to put pressure” on inflation.
Investopedia said that Hammack’s views are important because next year she will be one of 12 voters on the Federal Open Market Committee that makes decisions on interest rate changes.
