"Federal Reserve Mouthpiece": Three Rate Cuts Fail to Settle Internal Disputes, Need to Beware of "Stagflation Risks"

"Fed's Mouthpiece" Nick Timiraos recently wrote that Federal Reserve officials have cut interest rates for the third consecutive meeting, but inflation and the labor market should be greater concerns. There are unusual divisions within the Federal Reserve, leading officials to suggest a low willingness to continue cutting rates.

Recent public comments from Federal Reserve officials indicate a severe split within the committee, to the extent that the final decision may depend on how Fed Chair Powell wishes to proceed. Powell's term will end next May, meaning he will only preside over the next three interest rate-setting meetings. The persistent price pressures, coupled with a cooling labor market, present an unpleasant trade-off for the Federal Reserve, a situation not faced in decades.

During the so-called "stagflation" period of the 1970s, the Federal Reserve's stop-and-go approach to similar dilemmas allowed high inflation to become entrenched. UBS Chief U.S. Economist Jonathan Pingle stated, "As rates approach neutral levels, each rate cut loses more support from participants, and you need data to motivate those participants to join the majority for a rate cut." (Jin Shi)