The Federal Reserve is expected to cut interest rates at its upcoming December meeting following a strong jobs report. Nonfarm payrolls rose by 227,000 in November, leading to a 4.2% unemployment rate. Despite this positive news, critics are concerned about the potential risks of further rate cuts. Inflation remains a concern, with core inflation reaching 2.8% in October, above the Fed’s 2% target. Wages are also on the rise, reaching 4%, which some argue could lead to further inflation.
Former Obama administration economist Jason Furman believes that the pace of wage growth aligns more with 3.5% inflation, rather than the Fed’s target of 2%. He predicts more rate cuts will follow, but only after unemployment rises further. Financial conditions are also looser than they appear, with stocks rising, bond yields falling, and mortgage rates dropping. This raises questions about the necessity of further rate cuts in an already loose environment.
Federal Reserve Chair Jerome Powell has expressed optimism about the U.S. economy, describing it as “the envy of the developed world.” However, not all members of the Federal Open Market Committee (FOMC) share his enthusiasm. Cleveland Fed President Beth Hammack has called for a slower pace of rate cuts, citing the need for more evidence that inflation is on track to reach the Fed’s 2% goal. She believes it may be time to reassess the need for further rate reductions.
If the December rate cut goes through, it will mark a full percentage point drop since September. Hammack believes the Fed is nearing the neutral rate, the level that neither boosts nor restricts economic growth, and suggests it may be time to slow the pace of rate reductions. As the Fed enters a quiet period leading up to the December meeting, the decision on further rate cuts remains uncertain. Critics continue to debate the potential risks and benefits of additional cuts in the current economic environment.
