Copyright The Street
From Wall Street traders to Main Street shoppers, Americans are feeling the ripple effects of the Federal Reserve’s latest move to cut interest rates. The Fed’s decision was aimed at jump-starting a slowing economy clouded by stubborn sticky inflation and political tension. The Fed’s quarter-point cut to a 3.75%–4.00% benchmark rate makes borrowing cheaper, potentially spurring spending and job growth. But with grocery, rent and utility costs still surging up the wazoo, many households aren’t feeling much relief. A growing number of Fed officials warn that inflation remains “too high” and could derail progress toward the central bank’s 2% goal. With the next Federal Open Market Committee meeting set for Dec. 9–10, investors, businesses and consumers alike are bracing for another divisive debate over whether the Fed should stay the course or push harder to cool inflation. A divisive Federal Reserve faces tough decision in December A growing chorus of Federal Reserve officials is warning that inflation remains stubbornly high, signaling that the U.S. central bank is unlikely to rush into deeper interest-rate cuts despite cooling economic momentum. Hence, investment portfolios, business strategies, and household budgets may not experience that ping of the Fed’s dovish approach to monetary policy to ease the restrictive path it has been following. Here’s what’s being said about inflation at the Federal Reserve level before the next Federal Open Meeting Committee meeting on Dec. 9-10. Here’s what the Fed interest-rate cut does The Federal Reserve works to ease inflation by: Adjusting interest rates. Winding down its asset holdings. Maintaining a clear 2% long-run inflation target. The Fed’s new target for the benchmark Federal Funds Rate is 3.75% to 4.00%. The second-quarter percentage point cut of 2025 on Oct. 29 was wrapped in what economists call a “data fog.” This refers to the missing data courtesy of the government shutdown that froze all the leading economic indicators the Fed uses to balance its dual mandate. Instead, the central bank turned to private content such as the ADAP payrolls and state government figures like unemployment rates. More Federal Reserve: Fed decision could lower stagnant mortgage rates Powell shocks markets as Fed signals pause on interest rate cuts With the government shutdown showing no signs of thawing as of Nov. 3, it is a good bet that when the FOMC meets again Dec. 9-10, it will be forced to consider non-government data. It’s not an ideal way for the independent central bank to balance its dual mandate from Congress of price stability and low unemployment without the critical monthly leading economic indicators. Already, some Fed officials are raising concerns about inflation, even as others point to the weakening job market with its twisty-turvy figures that put unemployment at a relatively stable 4.3%. Inflation is at 3%, not the post-pandemic craziness, but still above the Fed’s own 2% target. That’s a tricky balance because: Lower interest rates decrease unemployment but increase inflation. Higher interest rates lower prices but increase job losses. Schmid, Hammack voice caution over inflation risk Kansas City Fed President Jeffrey Schmid reiterated his concern this week that inflation is “still too high,” saying he dissented from the most recent (FOMC) rate cut because the move risked undermining confidence in the Fed’s 2% inflation target. “The progress we’ve made is welcome, but we must avoid declaring victory too soon,” Schmid said in prepared remarks. Cleveland Fed President Beth Hammack echoed that caution, noting inflation is still running about a percentage point above the Fed’s goal. “We can’t lose sight of the fact that inflation has been elevated for too long,” Hammack said, adding that policymakers need “more consistent data” before easing policy further. Logan joins in stressing steady policy Dallas Fed President Lorie Logan agreed, saying she would have preferred to keep interest rates steady last week. “Inflation remains too high and appears likely to exceed our 2 percent target for too much longer,” Logan said in a statement following the October FOMC meeting. Goolsbee urges patience as Fed weighs next steps Chicago Fed President Austan Goolsbee took a slightly softer view but agreed that patience is essential. “There’s room for rate cuts if inflation continues to cool, but we need to see more proof,” Goolsbee said in an interview. The officials’ remarks underscore growing divisions within the Fed about how quickly to pivot from a tightening stance to rate cuts. While markets are betting on further easing before year’s end, policymakers remain wary that inflation could flare up again if they act too soon. With inflation still hovering above target and the labour market showing signs of strain, economists say the Fed faces one of its toughest balancing acts in years: cooling prices without stalling growth.
