The Fed hits the brakes: doubts grow over rate cuts as inflation remains stubborn

Michael Barr’s latest statements add tension to an already divided board, with the December meeting approaching amid rising uncertainty.

The Federal Reserve’s march toward new rate cuts may be slowing down. Governor Michael Barr has sent a clear signal: with inflation stuck around 3%, well above the 2% target, it’s time to proceed “with caution.” His words, while stopping short of an explicit “no” to another cut, add to a growing chorus of worried voices.

The upcoming Fed meeting, scheduled for December 9–10, is shaping up to be more uncertain than ever. Investors now assign only a 40% probability to another monetary easing, while policymakers appear increasingly divided. Barr, who supported the September and October cuts, had not yet taken a position on the next move — and his vote could prove decisive.

The macroeconomic picture isn’t helping. The September jobs report offers mixed signals: 119,000 new jobs, the strongest figure since April, but downward revisions in August and a slight uptick in unemployment to 4.4%. For Barr, the labor market is “cooling,” settling into a pace of growth that keeps unemployment steady.

Adding weight to the skeptics’ camp is Cleveland Fed President Beth Hammack, who labels the data as “tired” and warns that further cuts could undermine financial stability by encouraging excessive risk-taking. Austan Goolsbee, President of the Chicago Fed and a voter this year, also voices doubts: with inflation “moving in the wrong direction,” he says, lowering his guard isn’t an option.

With positions growing further apart, forging a consensus will be no easy task for Jerome Powell. And the December meeting, now more than ever, remains wide open.

Andrea Pelucchi