Three Fed officials voted against the quarter-percentage rate cut approved last week. Two of them said that no change was warranted. The third, Federal Reserve Bank of St. Louis President James Bullard, dissented because he wanted an even more aggressive reduction of 0.5 percentage points.
“I believe that lowering the target range for the federal funds rate by 50 basis points at this time would provide cushion against further declines in expected inflation and a slowing economy subject to elevated downside risks,” Bullard said in a statement on Friday.
“It is prudent risk management, in my view, to cut the policy rate aggressively now and then later increase it should the downside risks not materialize,” he added.
His colleagues don’t agree, at least not yet. Fed Chairman Jerome Powell said he expects the US economy to remain strong. “If the economy does turn down, then a more extensive series of rate cuts could be appropriate. We don’t see that. We don’t expect that,” Powell told reporters on Wednesday.
Bullard doesn’t buy that argument. He said on Friday that trade policy remains uncertain, and that US manufacturing already appears to be in recession. Inflation is well below the Fed’s target and higher prices are not expected to materialize.
Investors will spend this week carefully monitoring public statements by Fed officials. Bullard is expected to speak on Thursday, while six of his colleagues are also expected to make comments this week.
Economic data could also provide clues about the central bank’s direction. The final reading of second quarter US GDP will be published on Thursday. Data on durable goods orders, an indicator to which the Fed pays close attention, is slated for release on Friday.
Analysts’ view: Data unveiled by the Fed last week suggest investors shouldn’t expect further rate cuts in 2019. But many economists aren’t so sure. Analysts at Dutch bank ING expect a rate cut in December, plus another one in the first quarter of next year.
At least one resident of Washington, D.C., agrees with Bullard on the need for aggressive rate cuts: President Donald Trump.
Trump, who said last week on Twitter that Powell has “no guts, no sense” and “no vision,” has repeatedly called for the central bank to slash rates, and even suggested they should be moved into negative territory.
“Jay Powell and the Federal Reserve Fail Again,” Trump tweeted after the Fed decision, describing his own nominee to lead the central bank as a “terrible communicator.”