The U.S. Federal Reserve managed to portray a hawkish stance even while cutting rates this week.
During his post-meeting press conference on Wednesday, Fed Chairman Jerome Powell surprised markets, insisting that a December rate cut was far from guaranteed. The immediate reaction saw crypto and U.S. stocks decline through Wednesday afternoon and into Thursday.
The decision to cut rates also featured a dissenting vote. While the FOMC typically votes unanimously, Kansas City Fed President Jeff Schmid voted to keep rates steady. Additionally, Fed Governor Stephen Miran dissented, advocating for a 50 basis point cut instead of 25. As a recent Trump appointee, Miran’s dissent was expected as he had done the same at the last Fed meeting.
Inflation concerns persist
In a brief essay on Friday explaining his vote against the rate cut, Schmid questioned the necessity of easing monetary conditions, citing stock market highs, tight corporate bond spreads, and strong high-yield bond issuance.
He noted that inflation has consistently stayed above the Fed’s 2% target for years, showing no signs of abating. “I take small comfort in most measures of inflation expectations having not moved up,” he stated.
Regarding worsening labor market conditions, Schmid argued that there isn’t much the Fed can do, attributing it to “structural changes in technology and demographics.”
Markets retreat
Rate traders are currently assigning a 66% probability to a rate cut at the Fed’s December meeting, compared to 73% yesterday and nearly 95% before the unexpected statements from Powell and Schmid on Wednesday.
