The U.S. Federal Reserve (Fed) has adopted a clearly cautious approach to further interest rate cuts, as highlighted in recent remarks by its Chair, Jerome Powell. He emphasized that easing monetary policy too quickly could halt progress in the fight against inflation, which still exceeds the target level of 2%. In such a scenario, additional rate hikes might become necessary, potentially further destabilizing the economy. At the same time, Powell noted that an overly restrictive policy could negatively affect the labor market, signaling the need for a balanced approach and a lack of readiness for swift, further cuts.
However, internal debate within the Fed is intensifying. Calls for more decisive monetary easing are becoming increasingly prominent. Stephen Miran, nominated by Donald Trump, has advocated for a rapid reduction in rates to as low as 2–2.5%, which would mark a radical departure from the current range of 4–4.25%. Michelle Bowman has taken a similar position, pointing to a weakening labor market and moderating inflation, warning that the Fed may already be “falling behind” in its response. On the other hand, Austan Goolsbee, President of the Chicago Fed, has cautioned against hasty decisions, stressing that inflation remains elevated.
These discussions come in the context of the Fed’s first rate cut this year. The move was partly motivated by rising unemployment, even though inflation has not yet been fully contained. The Fed has also signaled the possibility of two more cuts in the near future, though no specific timing or scale of future decisions has been outlined.
The current situation reflects growing tensions within the U.S. central bank. Some policymakers fear an economic slowdown and push for faster action, while others remain cautious, prioritizing further stabilization of inflation. The Fed’s future policy direction will therefore depend on macroeconomic developments and its ability to maintain balance between supporting the labor market and controlling prices.
In response to this news, the S&P 500 corrected yesterday and ended the day down 0.48%. The tech-heavy NASDAQ 100 also fell by 0.68%, while the EUR/USD once again traded below 1.18.
Krzysztof Kamiński – OANDA TMS
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Source: CEO.com.pl
