Fed Officials Differ on Inflation, Labor Market Concerns

Despite a recent uptick in core inflation and a hotter-than-expected read on job creation, some Fed officials see no reason to pause further rate cuts. San Francisco Fed President Mary Daly, for example, says she sees no reason to stop cutting rates. Speaking yesterday at the Wall Street Journal’s TechLive conference in Laguna Beach, California, Daly said she supports further interest rate cuts in an effort to stave off further weakness in the labor market.

“So far, I haven’t seen any information that would suggest we wouldn’t continue to reduce the interest rate,” Daly said. “This is a very tight interest rate for an economy that already is on a path to 2% inflation, and I don’t want to see the labor market go further.”

Of course, not all Fed officials are convinced inflation is on a sustainable downward trajectory. Fed Governor Michelle Bowman and Atlanta Fed President Raphael Bostic, for example, have voiced concerns over the recent acceleration in core price pressures, as well as a potential need to slow or even pause additional rate cuts near term.

Recall, speaking earlier this month to the WSJ following the September CPI release, Bostic said he was “definitely” open to holding rates steady next month. “I think we have the ability to wait and let things play out a little longer... There are elements of the [CPI] report which I think validate that view,” he said.

Meanwhile, Fed Governor Michelle Bowman – the sole dissent in September – has been clear in her recent commentary that upside risks to inflation remain. Speaking at a Kentucky Bankers event last month, Bowman said, “Turning to the risks to achieving our dual mandate, I continue to see greater risks to price stability, especially while the labor market continues to be near estimates of full employment.”

Later this morning, at 10:00 a.m. ET, we will hear from Philadelphia Fed President Patrick Harker who will speak at a Fintech Conference hosted by the Federal Reserve Bank of Philadelphia.

Yesterday on the economic calendar, the Leading Index fell 0.5% in September, surpassing the 0.3% decline expected and following a 0.3% decrease the month prior.

This morning, the Richmond Fed Manufacturing Index is expected to rise from -21 to a reading of -17 in October.

Tomorrow, weekly mortgage applications will be released, along with September existing home sales.

Later in the week, on Thursday, initial jobless claims are expected to tick up from 241k to 242k in the week ending October 19, and the Chicago Fed National Activity Index is expected to rise from 0.12 to 0.50 in September. Also, the S&P Global U.S. Manufacturing, Services, and Composite PMIs will be released, along with September new home sales, and the Kansas City Fed Manufacturing Index.

On Friday, durable goods orders are expected to decline 1.0% in September following no change the month prior (and marking the largest monthly decline since June), and the final University of Michigan Consumer Confidence Index is expected be revised slightly higher from a reading of 68.9 to 69.2, albeit still marking a two-month low.

-Lindsey Piegza, Ph.D., Chief Economist