Michael Barr, Fed Governor "Inflation Concerns Rekindled"…Growing Caution Over December Cut [Fed Watch]

Korea Economic Daily

Summary

Michael Barr, a Fed governor, emphasized concerns about inflation and said monetary policy needs to be operated very cautiously.
Some Fed members reconfirmed their opposition to a December rate cut, and as a result markets are reflecting about a 40% chance of a December cut.
Major Fed bank presidents expressed concerns about the financial market risks from further rate cuts and the possibility of a deeper recession.

Barr: "Monetary policy must be run with great caution"

Hammack, Goolsbee, etc. also reconfirm opposition to a December cut

Voices within the U.S. central bank (Fed) expressing concern about inflation are growing louder.

Michael Barr, a Fed governor, said in a speech at an event in Washington, D.C., on the 21st (local time), "Inflation is still hovering around about 3% and our target is 2%," and emphasized, "We must operate monetary policy very cautiously and prudently to achieve the target." He did not explicitly state opposition to rate cuts, but clearly expressed concern over the stagnant inflation trend, putting the brakes on the possibility of further cuts.

Barr, who had supported consecutive rate cuts in September and October, had refrained from commenting on the December Federal Open Market Committee (FOMC) meeting. However, with some members already publicly revealing their positions for or against a December cut, analysts say his vote could sway the outcome. Futures markets currently price in about a 40% probability of a December rate cut.

The indicators released that day did not help to resolve internal Fed disagreements. The September employment report released by the Bureau of Labor Statistics (BLS) showed job gains of 119,000, the largest since April, but the August figures were revised down and the unemployment rate rose slightly to 4.4%. Barr described this as the labor market "cooling somewhat," saying that new hiring is approaching a 'breakeven' level that maintains the unemployment rate.

Beth Hammack, president of the Cleveland Fed, in a separate remark that day reconfirmed opposition to further rate cuts. She warned, "The September employment data have been somewhat muted in significance due to timing," and said, "Rate cuts intended to support the labor market could prolong high inflation and encourage excessive risk-taking in financial markets." She added, "If that happens, the next recession could be much deeper and more severe than usual."

Austan Goolsbee, president of the Chicago Fed, also said at an Indianapolis event the same day, "Inflation appears to have stalled and there are signs it could move in the wrong direction," and "I remain uneasy about further cuts."

New York=Park Shin-young, correspondent nyusos@hankyung.com