Federal Reserve Officials Make Their Case for December Pause

Dallas Fed President Lorie Logan and Kansas City Fed President Jeffrey Schmid (Federal Reserve Bank of Dallas; Bloomberg)

Key Points

• Two regional Federal Reserve presidents expressed reservations about further interest rate cuts, citing persistent inflation.
• Dallas Fed President Lorie Logan indicated that additional easing would require clearer evidence of economic cooling.
• The Federal Reserve’s recent rate cut to 3.75%-4% revealed internal divisions, with one official advocating for no cut and another for a deeper one.

Two days after the Federal Reserve lowered interest rates, two of its regional presidents pushed back, signaling the central bank’s appetite for further cuts may be exhausted.

Dallas Fed President Lorie Logan said Friday she would have preferred to hold rates steady at this week’s meeting and would “find it difficult to cut again in December” without clear evidence of faster disinflation or a weaker labor market.

Kansas City Fed President Jeff Schmid, who formally dissented from the quarter-point reduction, warned Friday that monetary policy is “only modestly restrictive” and inflation is too high to justify additional easing.

Their remarks, following Chair Jerome Powell’s own caution that another cut is “not a foregone conclusion,” and “far from it,” highlight growing disagreement inside the central bank about what comes next. Powell said this week “there were strongly differing views about how to proceed in December” among officials about the appropriate path for rates, an interesting turn after two consecutive quarter-point rate cuts.

At the Oct. 28-29 meeting, the Fed reduced its benchmark rate to 3.75%-4%, framing the move as recalibration rather than the start of an easing cycle. But a split vote showcased the committee’s divisions. Schmid opposed any cut while Governor Stephen Miran, a recent appointee of President Donald Trump, wanted a deeper one. Powell’s caution suggested he is trying to maintain flexibility as those divisions widen.

Logan and Schmid’s pushback shows where some of that resistance lies. Both pointed to an economy that is stronger than many expected, with solid household spending, low unemployment numbers, and steady business investment. Inflation, while well below its pandemic peak, has hovered above the Fed’s 2% target for nearly five years.

Schmid’s written dissent delivered one of the most direct challenges yet to the easing narrative. He argued inflation is “spreading across categories” and robust consumption and investment suggest policy isn’t restrictive enough to guarantee a sustained return to target. The Fed should lean against demand growth to prevent inflation from becoming entrenched, he wrote.

Logan, who will be a voting member of the Federal Open Market Committee next year, echoed that sentiment. She characterized the labor market as roughly balanced, with job growth sufficient to stabilize unemployment. Earlier cuts, she said, have already mitigated downside risks. Further easing would require clearer evidence of economic cooling.

“Inflation is still too high and too slow to return to target,” she said.

Cleveland Fed President Beth Hammack, who also rotates into a voting role next year, has also struck a more hawkish tone in recent comments, emphasizing patience as inflation settles. With both Logan and Hammack joining the voting roster, the committee’s center of gravity could tilt more cautious in 2026.

This debate is unfolding as policymakers contend with a federal government shutdown that has delayed critical economic reports, including employment data. Powell said on Wednesday the uncertainty reinforces the case for moving more carefully.

“What do you do if you’re driving in the fog?” he asked reporters. “You slow down.”

The lack of official data, he said, complicates any assessment of whether inflation or labor conditions are meaningfully improving.

For now, the economy continues to expand at a moderate pace and the job market remains stable, giving officials some room to wait. But inflation has retreated more slowly than many expected. For more policymakers, that remains the more dangerous side of the Fed’s dual mandate of price stability and full employment.

While markets still price in a high probability of a December cut, new rhetoric from inside the Fed suggests the bar is rising. A pause now looks increasingly probable, and consensus is more elusive than ever. ​​​​​​​​​​​​​​​​

Write to Nicole Goodkind at nicole.goodkind@barrons.com