How Concerning Is Inflation Right Now? Fed Officials Are Divided

Today’s inflation trends are either something to worry about or no big deal, depending on which Federal Reserve official you ask.

On Monday, at least four members of the central bank’s policy committee discussed whether the Fed should cut its key interest rate further in the months ahead. This is the first time some have spoken publicly since the central bank’s policy-setting committee decided last week to cut borrowing costs for the first time in 2025.

Three speakers explained why they favored a cautious approach and were concerned about the risks of high inflation. Meanwhile, the newest member of the committee advocated steep rate cuts.

The comments shed light on the reasoning behind the division among Fed officials, which was clear in the FOMC’s policy predictions released last week alongside the rate decision.

Seven of 19 FOMC members thought the September rate cut would be the last for the year, while 11 favored at least one additional quarter-point cut this year. Fed Governor Stephen Miran was a conspicuous outlier, calling for the Fed to cut its rate by one and a quarter percentage points to a range of 2.75% to 3% in its remaining two meetings this year.

“The chasm between the maximum and minimum dots was immense, particularly considering there are only two meetings remaining this year,” economists at Deutsche Bank wrote in a research note.

Why Inflation Troubles Some Fed Officials

Fed officials cut the fed funds rate in September to give a boost to the faltering job market, but some officials, including Fed Chair Jerome Powell, were wary of cutting it too much for fear of stoking inflation.

On the cautious side Monday were Beth Hammack, president of the Federal Reserve Bank of Cleveland; Raphael Bostic, president of the Atlanta Fed; and Alberto Musalem, president of the Cleveland Fed.

In separate public appearances, those three policymakers noted that inflation as measured by PCE prices excluding food and energy was still increasing at a rate close to 3% a year, above the Fed’s target of a 2% annual rate, which hasn’t been seen since 2021.

Bostic said he did not favor cutting the fed funds rate again when the central bank meets in October, but could change his mind based on economic data before that meeting.

“I am concerned about the inflation that has been too high for a long time,” he told the Wall Street Journal in an interview. “And for me, I think it’s important that we continue to signal the importance of that.”

All three cited President Donald Trump’s tariffs as a major contributor to current high inflation and a risk for further price increases in the future.

However, tariffs may not be the only source of inflation. Musalem, speaking with the Brookings Institution think tank, said tariffs have pushed up prices measurably, but to a lesser extent than had been forecast, and other economic forces may be contributing to the trend.

Hammack also said she was reluctant to cut rates too quickly.

“We should be very cautious in removing monetary policy restriction,” she said at an event hosted by the Cleveland Fed.

Outlier Fed Member Joins Trump In Calling For Steep Rate Cuts

In stark contrast, Fed Governor Stephen Miran detailed his call for steep cuts to the benchmark rate.

Miran, a Trump appointee, joined the Fed’s policy committee last week. He is also an economic advisor in the White House, a dual role that has drawn criticism over potential conflicts of interest despite the fact that he has taken a leave of absence until his term expires in January.

Miran shares his boss’s view that tariffs are good for the economy, are not driving inflation, and that the Fed should cut rates rapidly, making him an outlier.

“With respect to tariffs, relatively small changes in some goods prices have led to what I view as unreasonable levels of concern,” Miran said at the Economic Club of New York, according to prepared remarks.

In Miran’s view, inflation will take a downward trajectory because Trump’s crackdown on immigration will reduce the number of renters competing for apartments, pushing down rent inflation.

“I believe forecasters have underappreciated the significant impact of immigration policy on rent inflation—both on the way up and, now, on the way down,” Miran said.

Markets Expect More Cuts

Financial markets are pricing in near certainty the Fed will carry out at least one more quarter-point rate cut by the end of the year, according to the CME Group’s FedWatch tool, which forecasts rate movements based on fed funds futures trading data.

Investors are pricing in an 89.8% chance of a cut at the Fed’s next meeting on Oct. 28-29.