Kansas City Federal Reserve President Esther George hints in a speech Sunday she may not support another rate cut for the Federal Funds Rate at the next meeting. George is a voting member of the Federal Open Market Committee this year.
The FOMC meets for two days October 29 and October 30th. At the conclusion of the meeting the committee will decide if the Federal Funds Rate needs to be cut. That rate directly affects interest rates for mortgages and credit cards as well as other rates.
The Kansas City Federal Reserve President says the economy is in “good place” echoing the words of the Federal Reserve Chairman Jay Powell from Friday.
However, George says inflation running just under target is no reason to cut rates again saying,”In the midst of the longest business cycle expansion in history, inflation running a few tenths of a percent below 2 percent is, in itself, not a compelling justification for providing additional monetary policy accommodation." She adds that people on “Main Street” do not see inflation running under the Federal Reserve’s target of 2 percent for a prolonged time as a problem.
Another voting member of the FOMC, St Louis Federal Reserve President James Bullard, believes the Federal Reserve needs to get inflation back to the 2 percent target. He dissented the 25 basis point rate cut, advocating a more drastic 50 basis point rate cut at the last meeting. In his justification he says that manufacturing in the United States may be in a recession because of trade uncertainty.
George points to the uncertainty as a potential reason for the low inflation. She says in the speech to the National Association for Business Economics Annual Meeting that the trade uncertainty and global economic slowdown could cause firms in the United States to be more cautious, artificially keeping inflation domestically and around the globe low.
“Rather than focusing too narrowly on achieving a precise point target of 2 percent inflation, I find it more realistic to accept that there will be both temporary and persistent fluctuations around this long-run target.” George says. Adding inflation fluctuations, “…should be tolerated, depending on broader economic conditions.”
She does leave the door open for a rate cut if the economic data shows weakness, “If weaker global demand and trade policy uncertainty were to materially weaken my modal outlook for growth, providing additional monetary accommodation may be warranted."
Weakness could not be seen in the latest jobs report from the Bureau of Labor Statistics which shows the unemployment rate falling to low of 3.5 percent. That is a mark not seen since December 1969.