Divisions emerge within the Federal Reserve: Logan and Schmidt oppose interest rate cuts, warning that inflationary pressures remain

According to the Zhitong Finance APP, Dallas Federal Reserve President Lorie Logan and Kansas City Federal Reserve President Jeff Schmieding stated that they do not support the Federal Reserve's decision to cut interest rates this week, citing that inflation remains too high. Non-voting member Logan says there is no need to cut rates this week Logan spoke at an event in Dallas on Friday, stating that she "does not believe there is a need to cut rates this week." Earlier that same day, Schmieding also issued a statement outlining his reasons for opposing the rate cut on Wednesday. The remarks from Logan and Schmieding mark the beginning of a potentially intense debate over the next six weeks, leading up to the Federal Reserve's policy meeting in December. Some officials believe further easing of monetary policy is needed to support the labor market, while others are more concerned about inflation. "Unless there is clear evidence that inflation is declining faster than expected, or that the labor market is cooling more quickly, it will be difficult to cut rates again in December," Logan said. Although Logan does not have a vote on monetary policy this year, she will participate in discussions at the Federal Open Market Committee and will rotate into the voting group in 2026. Logan expressed her support for the Federal Reserve's decision to stop reducing the size of its balance sheet on December 1, as market conditions indicate that the current size of the balance sheet is close to normal levels. Previously, due to persistently high short-term interest rates in the money market, the Federal Reserve announced the end of its three-year balance sheet reduction plan on Wednesday. While the Federal Reserve stated it would continue to reduce its mortgage-backed securities portfolio and reinvest the proceeds into Treasury bills, it did not announce additional liquidity measures to help alleviate financing costs. Before joining the Dallas Fed, Logan spent most of her career in the market trading department of the New York Fed. She stated that ending the balance sheet reduction should help ease funding pressures. Logan said, "Once the trend of rising repurchase rates ends, the Federal Reserve can further reduce reserve supply by temporarily maintaining asset levels and allowing the decline in reserves to offset the trend growth of other liabilities (such as currency). However, if the recent rise in repurchase rates is not temporary, I believe the Federal Reserve will need to start purchasing assets to prevent further declines in reserves and maintain adequate reserve supply." Voting member Schmieding worries that economic growth and investment may exacerbate inflation Schmieding stated that he opposed the Federal Reserve's decision to cut rates this week due to concerns that economic growth and investment may intensify inflationary pressures. "In my assessment, the labor market is essentially in balance, the economy maintains sustained growth momentum, and inflation levels remain too high." Federal Reserve officials voted on Wednesday to lower the benchmark interest rate by 25 basis points, marking the second rate cut in two months, aimed at boosting the gradually slowing labor market. Federal Reserve Chairman Jerome Powell told reporters after the decision that another rate cut at the December meeting (which the market widely expects) is not a foregone conclusion, noting that some colleagues are concerned about inflation issues. Data released earlier this month by the Labor Department showed that annual consumer prices rose by 3% as of September, with the inflation rate remaining above the Federal Reserve's 2% target for over four years. Schmieding reiterated that businesses in his district continue to express concerns about rising costs and emphasized that monetary policy should act to suppress demand growth "I believe that a 25 basis point cut in the policy interest rate has limited effects on alleviating labor market pressures, which are more likely to stem from structural changes such as technology and demographic shifts," Schmidt pointed out. "However, if the market questions the Federal Reserve's commitment to achieving the 2% inflation target, this rate cut could have a more lasting negative impact on inflation." Schmidt stated that the current monetary policy is only at a moderately restrictive level and noted that the financial market environment remains relatively loose. This opposition marks Schmidt's first since taking office as a Federal Reserve official. He joined the Federal Reserve in 2023 and gained voting rights on the Federal Open Market Committee for the first time this year. At this week's meeting, Federal Reserve Governor Stephen Milan also cast a dissenting vote, advocating for a 50 basis point cut in the federal funds rate