Fed Policymakers Divided Over Need for More Rate Cuts

• U.S. central bankers who have supported two interest rate cuts this year signalled on Monday divergent views on the need for more, underscoring the challenge for Federal Reserve Chair Jerome Powell as he helms a divided group of policymakers. St. Louis Fed President Alberto Musalem was downright skeptical about the prospect of further monetary easing.
• "It's very important that we tread with caution here: I think there is limited room to ease policy further without policy becoming overly accommodative," he told Bloomberg Television. Inflation, he noted, is closer to 3% than the Fed's 2% target.  He added that financial conditions including stock valuations and house prices are elevated; monetary policy is nearer to neutral than to modestly restrictive; and the labour market has cooled in an orderly manner.
• Signalling a bit more openness to a rate cut was San Francisco Fed President Mary Daly, who said muted wage growth shows demand for labour is cooling, and at the same time tariffs have not lifted inflation in any broad-based or persistent way. Daly said she is on the alert for the possibility that a rise in productivity from the adoption of artificial intelligence could allow for faster economic growth without pressuring inflation. "While I'm looking for productivity gains and seeing if they're going to continue, I'm also keeping my eye completely focused on inflation to make sure that it doesn't pick up in a way that would suggest we need to do more or we need to hold longer," Daly told Bloomberg Television. At the same time, she said, "we don't want to make the mistake of holding on too long for rates, only to find out we injured the economy."
• Fed Governor Stephen Miran, who dissented in October in favour of a bigger rate cut, feels the evidence is already in, with quickly falling inflation and a softening labour market making further policy easing "imperative."

(Source: Reuters)