Federal Reserve officials are increasingly divided over the future of interest rates, with a growing rift between those who believe monetary policy is too tight for a softening labor market and others who remain focused on persistent inflation. The disagreement comes on the heels of last week’s quarter-point rate cut and reflects broader uncertainty over how to balance the Fed’s dual mandate of stable prices and maximum employment.
Governor Stephen I. Miran has called for significantly deeper cuts, saying current policy is “very restrictive” and risks damaging the job market. Speaking Monday in New York, Miran argued for a federal funds rate closer to 2 to 2.5 percent — far below the current 4 to 4.25 percent range. He warned that keeping rates too high could force the Fed into overcorrecting later.
In contrast, Atlanta Fed President Raphael Bostic maintains a more hawkish stance. He supports only one additional rate cut for 2025 and sees inflation not returning to the Fed’s 2 percent target until 2028. “I am concerned about the inflation that has been too high for a long time,” Bostic stated, ruling out support for a cut in October.
The divide mirrors a changing economic landscape. Job creation has dropped sharply, averaging just 29,000 new positions monthly over the past three months. Unemployment has ticked up to 4.3 percent, with pronounced job losses among youth and minority groups. Vice Chair Michelle Bowman noted that wage growth has slowed to a pace compatible with 2 percent inflation, calling for more easing to prevent further labor market deterioration.
Additional signs of strain include weakening demand and reduced pricing power among businesses, as shown in September’s S&P Global purchasing managers’ survey. Despite higher input costs driven by tariffs, firms have struggled to raise prices, suggesting easing inflationary pressures.
Fed Chair Jerome Powell offered a centrist view, highlighting “two-sided risks.” He acknowledged inflation’s persistence but stressed the need to protect employment. “Our framework calls for us to balance both sides of our dual mandate,” Powell said in Rhode Island on Tuesday.
St. Louis Fed President Alberto Musalem, while supporting the recent cut, warned that additional easing may push policy into dangerously accommodative territory, possibly reigniting inflation. Still, underlying economic strength—such as solid corporate earnings and high profit margins—offers some cushion.
Research pointing to demographic shifts and declining immigration suggests the neutral rate may be lower than previously believed, making current policy more restrictive than intended. This could justify deeper cuts to prevent economic contraction.
With the next Fed meeting scheduled for late October, the coming weeks will be critical in determining whether the central bank leans toward aggressive rate reductions or continues its cautious path.
