The Economy Fed's Rosengren Says Rate Cut 'Not Needed'

Daniel Fowler
September 21, 2019

This is a stark contrast to the revised economic projections released by FOMC members a few days ago, who listed the official median forecast for the Federal Funds Rate (FFR) at 1.9% seeing that we now sit at a range between 1.75-2.00%.

While some Fed officials worry more about potential price pressures, since the U.S. economy continues to grow at a fairly solid pace and produce historically low jobless rates, Bullard said "there is little evidence that low unemployment poses a significant inflation risk in the current environment". Unlike the other two dissenters who though rates should be left unchanged, Bullard wanted a larger cut (half a point) to the Fed's policy rate.

U.S. Federal Reserve officials remain divided following a quarter-point interest rate cut earlier this week, as three of them spoke out and defended their respective views on Friday, signaling a growing split among monetary policymakers amid rising risks to and uncertainties in the U.S. economy.

Along with two others, Rosengren on Wednesday voted against a decision to cut interest rates by 25 basis points.

As bonds have matured, the Fed has accepted repayment rather than reinvesting the proceeds, which moves cash out of the economy and into government coffers.

A China delegation had canceled a visit to US farms in Montana, the Montana Farm Bureau said around midday Friday.

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For the first time since the 2008 financial crisis, the Fed this week conducted a series of major repo operations, injecting $278 billion into the market to deal with a jump in short-term interest rates. Another five suggested rates might even go up from where they are after Wednesday's cut. "I think it also comes down to risk management..."

But in their opposing dissents, Bullard and Rosengren showed the divergence in views.

What's unusual now is the crisp division and the reasons driving it, and the political context of a president who wants deep rate cuts for a wholly different rationale. Monetary easing by the U.S. Federal Reserve this week and by the European Central Bank last week appears to have improved market sentiment.

On trade, Bullard appeared to see the impacts of rising tariffs as a more substantial risk to the US economy, saying that USA manufacturing "already appears in recession".

For Trump, who argues the USA economy is the strongest ever, the logic is simple: cut rates to make it even stronger, with little or no risk because inflation is so low. His dissent was not a surprise; Bullard had publicly called for a 50 basis point cut prior to the meeting.

The Fed's next policy-setting meeting will take place October 29-30.

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