Two Federal Reserve officials who dissented from the central bank’s decision to cut a key policy rate this week said Friday they did not believe economic conditions justified the move.
Eric Rosengren, president of the Fed’s Boston regional bank, said that he saw no “clear and compelling” reason for the rate cut. Esther George, head of the Fed’s Kansas City bank, said she would be willing to support a future rate cut should incoming data weaken.
The Fed on Wednesday approved by an 8-2 vote a quarter-point cut in the Fed’s benchmark interest rate, moving it down to a new range of 2% to 2.25%. It was the first rate cut in more than a decade.
Both officials released statements explaining their opposition on Friday.
Federal Reserve Chairman Jerome Powell had justified the move during his news conference on Wednesday as guarding against downside risks to the economy from such factors as the uncertainties caused by President Donald Trump’s trade wars and what slowing global conditions might do to U.S. growth prospects.
Financial markets fell sharply after the Fed’s action because they had been hoping for a half-point cut and stronger language holding out the promise of more rate cuts to come. On Thursday, Trump sent stocks down further with a surprise announcement that beginning on Sept. 1 he plans to impose 10% tariffs on an additional $300 billion in Chinese imports he hasn’t already taxed.
Neither Rosengren nor George mentioned Trump’s latest trade threat against China in the statements justifying their Wednesday dissents.
But George did say, “There are certainly risks to the outlook as the economy faces the crosscurrents emanating from trade policy uncertainty and weaker global activity. Should incoming data point to a weakening economy, I would be prepared to adjust policy consistent with the Federal Reserve’s mandates for maximum sustainable employment and stable prices.”
For his part, Rosengren said his reason for opposing a rate cut was related to the fact that unemployment is near a 50-year low and financial stability concerns are “somewhat elevated” given stock prices near record levels and high levels of corporate borrowing.
Many economists believe the Fed may cut rates again as soon as its September meeting given the new trade tensions Trump has introduced by threatening to widen his punitive tariffs on China.
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