Discrepancies in the Federal Reserve's rate cut pace: Waller advocates for cautious rate cuts, while Milan calls for a more aggressive 50 basis points cut

On Thursday, Federal Reserve officials expressed differing views on the pace of interest rate cuts. Governor Waller advocated for a cautious approach of maintaining a 25 basis point cut to address the weak labor market, while interim Fed Governor Miran called for a more aggressive 50 basis point cut. The core of the disagreement lies in the speed of policy adjustments. Waller emphasized the need for caution to avoid mistakes, while Miran expressed concerns that overly tight policies in the face of external shocks could amplify negative consequences. Fed Chair Powell hinted earlier this week that officials are preparing to cut rates by another 25 basis points at the end of this month, which would be the second rate cut this year. Policymakers are responding to a sharp slowdown in job growth, but several officials stressed the need to remain vigilant about inflation risks, as inflation rates are still above the Fed's 2% target. Miran reiterated his call for a 50 basis point cut in an interview with Fox Business on Thursday, arguing that the recent escalation of trade tensions poses greater downside risks to the economy, necessitating a swift easing of monetary policy. However, he acknowledged that officials might cut rates by 25 basis points, as they did in September, and he expects three 25 basis point cuts this year. Waller Advocates Gradual Rate Cuts Waller stated in a media interview on Thursday that the Fed could continue to gradually lower rates by 25 basis points. He said: You don't want to make mistakes, so the way to avoid errors is to act cautiously, cut rates by 25 basis points, observe what happens, and then you can better judge what to do next. Waller noted that there has not been much change in the situation over the past six weeks, with private sector data continuing to reflect a weak labor market. Current inflation is estimated to be around 2.5%, with no signs indicating a significant rise in inflation. The Beige Book did not show an optimistic or prosperous economic outlook, and GDP may weaken by the end of the year. Regarding the impact of AI, Waller expressed concerns about whether AI would lead to structural changes in labor demand, which the Fed's cyclical tools cannot address. He mentioned that tariff uncertainties and questions about AI's potential impact on productivity have weakened CEOs' willingness to hire. Corporate investment is primarily focused on AI and is not widely distributed. Once AI is excluded, corporate fixed investment is declining. On the selection of the Fed Chair, Waller also stated that his interview with Bessent went very smoothly and quickly. He has not yet spoken with President Trump and is unsure if that conversation will take place. Miran Calls for Increased Rate Cuts Miran is currently on temporary leave from his position as Chair of the White House Council of Economic Advisers to serve as a Fed Governor, with his term set to expire in January next year. In Thursday's interview, he reiterated his call for a 50 basis point cut, arguing that the recent escalation of trade tensions has created greater downside risks for the economy, necessitating a swift easing of monetary policy. If monetary policy remains as tight as it is now, and the economy faces such shocks, it will indeed substantially increase the negative consequences of that shock, supporting a 50 basis point cut at the October meeting. Despite the sharp slowdown in job growth, several Fed officials emphasized the need to remain vigilant about inflation. Current inflation rates are still above the Fed's 2% target level Milan acknowledged that officials may cut rates by 25 basis points as they did in September, and I believe we are likely to see three cuts of 25 basis points this year. This expectation aligns with the market's general view on the Federal Reserve's policy path for the remainder of the year, indicating that despite internal differences, the Federal Reserve may still adhere to a gradual rate-cutting strategy