Kevin Warsh, the presumptive next chair of the Federal Reserve, has over the past year consistently said that interest rates in the US are too high. <\/p>\n
Markets have taken this as a sign that cuts are coming soon. Investors are currently pricing in just under two rate cuts this year, which would take the benchmark rate to 3-3.25 per cent by the end of 2026.<\/p>\n
But recent data suggests that the US economy<\/a> is still robust, labour markets are resilient and inflation is decelerating only slowly. The US strikes against Iran will amplify inflation fears. That suggests that the main reason cuts are still forecast is because of expectations that Warsh will lean dovish. <\/p>\n The Fed chair cannot set the rate path alone and needs consensus of a majority on the Federal Open Market Committee. Though outright dissents are rare, strong pushback against a cut from a majority of voting members at a monetary policy meeting would be very likely to dissuade Warsh from forcing the issue. The following comments from FOMC members were taken before the US military strikes in Iran starting on Saturday. <\/p>\n The Fed board doves <\/p>\n Apart from Stephen Miran, who will step down to make way for Warsh, the two most dovish Fed voters are board members Christopher Waller and Michelle Bowman. <\/p>\n But in recent statements, both have hinted that they are becoming more data-dependent in their approach to rate-setting and do not necessarily support imminent further easing. <\/p>\n Waller, who along with Miran voted to cut rates in January, said last week that the January labour market data \u201ccame in substantially stronger than I [\u2009.\u2009.\u2009.\u2009] expected\u201d and that it could push him towards supporting \u201ca pause at our upcoming meeting\u201d if confirmed by the February numbers. <\/p>\n But he reiterated that the labour market remained the main driver of his policy views and that he doesn\u2019t put much stock in tariff risks to inflation. <\/p>\n Days after the January rate-setting meeting, Bowman framed the vote as a choice \u201cbetween [delivering three cuts] by the April meeting, or moving [\u2009.\u2009.\u2009.\u2009] at a more measured pace.\u201d Her vote to hold rates was ultimately determined by increasing \u201csigns of stabilisation\u201d in the labour market as well as \u201csomewhat elevated\u201d inflation. <\/p>\n Bowman also said that \u201cthe statistical noise introduced by the government shutdown\u201d reduced the \u201cmeaningful signal\u201d in the data and that her vote at future meetings will be determined by what the data shows.<\/p>\n Like Waller, Bowman seems to be moving away from a fixed dovish narrative, suggesting that the two FOMC uber-doves will support rate cuts in the near future only if the data justifies such a move. <\/p>\n The other permanent voters<\/p>\n Other Fed board members\u2019 perspectives on further easing range from ambivalence to firm opposition. <\/p>\n Philip Jefferson is closest to backing another cut. In February, he said<\/a> that he saw \u201crisks on both sides\u201d of the dual mandate. However, he put more emphasis on the labour market, stating that although he expects \u201cthe unemployment rate to hold approximately steady [\u2009.\u2009.\u2009.\u2009] in this less dynamic labor market, the downside risks [\u2009.\u2009.\u2009.\u2009] remain\u201d.<\/p>\n Jefferson was marginally less concerned with inflation. He said that \u201csome upside risks remain, but I expect the disinflationary process to resume this year [and] projected strong productivity growth may [help bring] inflation down\u201d.<\/p>\n Michael Barr and Lisa Cook, by contrast, have both talked up the risk of above-target inflation more than the prospect of rising unemployment. <\/p>\n