Fed Officials Still Lean Against Near-Term Rate Cuts Despite Job Losses…

By Steven K. Beckner

(MaceNews) – Until very recently, it had become all but a foregone conclusion that the Federal Reserve would leave short-term interest rates unchanged at its mid-March meeting, and even beyond that there was little indication of a consensus for the resumption of rate cuts until later in the year.

In the face of a surprisingly weak February employment report and the imponderable economic consequences of the expanding war against Iran, the outlook for monetary policy has become far more uncertain in the waning weeks of the Powell Fed. But with a few notable exceptions there is little support among Fed officials for a return to monetary easing in the near future.

Notwithstanding the big dip in February payrolls, other readings, including from the Fed’s own “beige book” survey, reflect more resilience in the economy and inflation continues to run closer to 3% than to the Fed’s 2% target.

So, the Fed’s policy-making Federal Open Market Committee still seems highly likely to delay additional rate cuts at its March 17-18 meeting.  The outcome of the April 28-29 and subsequent FOMC meetings is less obvious, but official comments suggest it will take more evidence of labor market softening to hasten rate cuts.

As always, officials universally say they will be guided by the data and how they affect the balance of risks, but the fact is there are predispositions — varying degrees of openness to providing more monetary stimulus. The way it currently breaks down, a few Fed officials remain outspokenly in favor of further rate cuts; some are adamantly opposed, and others are open to additional easing but only down the road and only when they become convinced that inflation is headed down to the Fed’s 2% target.

FOMC participants will be compiling a new Summary of Economic Projections (SEP) at the March 17-18 meeting, including a new “dot plot” of funds rate projections, and judging from recent comments it seems questionable whether the amount of expected rate cuts will increase much.

The timing of eventual rate cuts is as uncertain as the outlook, but it’s worth noting that over the years, September FOMC meetings have often been the time for major policy moves.

President Trump has formally nominated former Fed Governor Kevin Warsh to succeed Jerome Powell when his term as chair ends on May 15, but while Trump clearly hopes Warsh will slash rates that may not eventuate.

Already uncertain policy prospects were further clouded , in the minds of Fed officials, by the U.S.-Israeli attack on Iran and its potential economic repercussions. In particular, spiking energy costs, while nowhere near the magnitude of those that occurred in previous Middle East conflicts, stand to work deleteriously on both sides of the Fed’s dual mandate — increasing price pressures while also exerting contractionary effects on economic activity.

Now, a shocking reversal of job gains, reported Friday morning, has added to uncertainty, but this does not seem to have measurably increased the impetus for easing.

The weak jobs report did not seem to change the view of Cleveland Federal Reserve Bank President Beth Hammack. Given what she sees as excessive inflation, the FOMC voter said she still believes monetary policy “should be on hold for quite some time as we see evidence that inflation is coming down and the labor market stabilizes further.”

Though known as less “hawkish” than Hammack, San Francisco Fed President Mary Daly did not seem much more open to rate cuts after the employment report was released.  While she expressed concern about the reappearance of weakness in the labor market, she said the FOMC should not be too quick to react, because there are also upside risks to inflation.

Boston Fed President Susan Collins reacted to the employment report by saying she still has a “fairly benign” economic outlook and called for “maintaining policy rates at their current, mildly restrictive levels for some time.”

Before the employment report, other officials, including FOMC Vice Chairman and New York Fed President John Williams, Richmond Fed President Tom Barkin, Minneapolis Fed President Neel Kashkari, Philadelphia Fed President Anna Paulson and Kansas City Fed President Jeff Schmid came down largely in favor of an indefinite pause.

A notable exception was Governor Stephen Miran. Who has repeatedly dissented in favor of more aggressive rate cutting.