A noticeable cautious tone has recently emerged within the Federal Reserve, with several senior officials expressing reservations about further interest rate cuts, believing there is limited room for easing. Although the first rate cut in September was seen as a risk management measure, it did not receive unanimous support.
St. Louis Fed President Musalem pointed out in a speech that last week's 25-basis-point cut was intended to prevent a deterioration in the labor market. However, policy is currently "between moderately restrictive and neutral," and there is very limited room for future cuts if excessive easing is to be avoided. He emphasized that inflation risks persist and that he would only consider further action if the labor market weakens again, provided that inflation expectations remain stable.
Atlanta Fed President Bostic also signaled caution. He predicts only one rate cut this year and bluntly stated there is "no reason to cut again." In his view, inflation is likely to remain above target for the next few years and will struggle to return to 2% before 2028. Although there are indeed signs of cooling in the job market, it is not in crisis. He also mentioned that the timing gap between immigrant supply and work authorization could exacerbate labor shortages, thereby supporting prices.
Cleveland Fed President Mester expressed even greater concern. She believes the U.S. labor market remains healthy, but inflation has been above target for four consecutive years. If the Fed relaxes policy too quickly, it could cause the economy to overheat again. She noted that the current interest rate level is not far from neutral, so future easing should be extremely cautious.
The stances of these three officials highlight the divisions within the Fed: On one hand, some members believe increasing employment risks necessitate policy support; on the other hand, inflation remains high, making most reluctant to cut rates again easily. Coupled with external uncertainties such as tariffs, the interest rate direction of the next two FOMC meetings may become more contentious.
Overall, although the Fed has begun a rate-cutting cycle, the shadow of inflation still looms over policymakers, and the possibility of significant further easing within the year is gradually diminishing.
