(Bloomberg) -- Two Federal Reserve officials laid out the case for a possible interest-rate cut just days after Chairman Jerome Powell said there was no reason to move rates in either direction.
St. Louis Federal Reserve Bank President James Bullard and Chicago Fed President Charles Evans, both policy voters this year, expressed caution Friday over weak prices and said the central bank may have to act to lift inflation out of a persistently low trend.
That contrasts with Powell’s dismissal of low inflation readings as temporary during his press conference on Wednesday after the Fed held rates steady, pushing back against pressure for a cut from traders and President Donald Trump.
Powell said officials wouldn’t ignore inflation that ran too low for too long below their 2 percent target, but argued price pressures should be supported by a healthy economy and the lowest unemployment in nearly 50 years. Data released Friday showed surprisingly strong hiring and cooler-than-projected wage gains, suggesting a hot labor market can extend its run.
Inflation excluding food and energy prices slowed to 1.6 percent in the 12 months through March compared with 1.95 percent in December.
Bullard said he is prepared to wait through the summer. But if inflation expectations “are still too low and actual inflation doesn’t seem to be picking up then I think the level of my concern would get more intense,” he told Reuters in an interview on Friday. “I am open to a rate cut to try to combat this.’’
Evans, answering questions after a speech in Stockholm, said he would “not be afraid to act” if a rate cut was warranted by the inflation outlook, though he also said it would take some time for him to come to that view. “It would take a number of data reports to take as very serious the under-running of inflation. I am certainly saying I want to see more monthly reports,” he said.
A diversity of views among officials is not uncommon at the central bank. Still, those views haven’t so far led to any dissents by policy voters since Powell became chairman in February 2018. Also, during post-meeting press conferences he hasn’t conveyed much sense of the variety of views on the Federal Open Market Committee, which are more apparent in meeting minutes released with a three-week lag.
Messaging by the FOMC, such as the policy statement and subsequent press conference, “has difficulty communicating scenarios’’ in which they would alter policy, said Michael Gapen, chief U.S. economist at Barclays (LON:BARC) Capital Inc. That may be because that would be a form of forward guidance that Powell is currently averse to.
Fed Dissents
Powell has not suffered a single dissent in the 10 policy meetings that he’s chaired, in contrast with his two predecessors. Janet Yellen had a dissent at her first scheduled FOMC meeting on March 19, 2014. Ben Bernanke got one at his fourth meeting.
There may be an obvious reason for the unity around Powell at this time. The Fed has suffered a barrage of attacks from Trump and others in his administration demanding Powell cut rates. The drumbeat continued Friday when Vice President Mike Pence told CNBC that low inflation means “this is exactly the time, not only to not raise interest rates, but we ought to consider cutting them.”
“I think the president’s pressure has had an important effect,” said Mark Spindel, chief investment officer at Potomac River Capital and co-author of a book on the Fed’s relationship with Congress. “It bands them together, but sometimes raising your hand and saying, ‘I disagree’ can be an important way to communicate.”
