Fed Officials Break Silence; Still Divided About Future Of Interest Rates

Three members of the Federal Reserve’s policy committee talked about interest rates on Friday, and fittingly, given the divisions on the committee, had three different takes about where it should go.

Beth Hammack, president of the Federal Reserve Bank of Cleveland, said she preferred to keep the Fed’s key interest rate higher for longer to push down inflation that’s still running above the Fed’s goal of a 2% annual rate. Chicago Fed President Austan Goolsbee said he thought rates could come down significantly next year, but that he had opposed the rate cut the Fed made this week because he wanted to see more data first. Anna Paulson, president of the Federal Reserve Bank of Philadelphia, said inflation would likely fade next year and that she saw greater risks to the labor market.

The comments were the first from Fed officials since the “blackout period” surrounding the Fed meeting, in which officials don’t publicly discuss interest rates. The diversity of opinions reflects the difficulty of the Fed’s balancing act as it pursues its dual mandate from Congress to keep inflation low and employment high.

Tariffs have pushed up consumer prices, fueling an uptick of inflation in recent months and pushing it farther away from the target. When inflation accelerates, the Fed usually responds by raising its key interest rate, which increases borrowing costs on all kinds of loans and discourages spending.

Meanwhile, the job market has been struggling, partly due to tariff-related disruptions, and Fed officials are increasingly concerned about the risk of a wave of unemployment. The Fed can counteract job slumps by lowering rates instead, and that’s what it has done at its last three meetings.

A major question for Fed officials is whether interest rates are “restrictive,” meaning rates are high enough to be a drag on the economy and inflation. They’re hoping to ensure their rates are “neutral,” meaning they neither hinder the economy nor boost it with easy money.

“Right now, we’ve got policy that’s right around neutral,” Hammack said Friday during an event in Cincinnati, Bloomberg reported. “I would prefer to be on a slightly more restrictive stance to help continue to put pressure” on inflation.

Hammack’s views are especially important because next year she will be one of 12 voters on the Federal Open Market Committee that makes decisions on interest rate changes. (Four seats on the board rotate among 11 regional Fed banks.)

Paulson, on the other hand, said she thought interest rate policy is currently restrictive. She said she was more concerned about the job market than inflation.

“I attribute most of the increases in goods inflation in 2025 to tariffs, and I expect the bulk of these effects to disappear by middle of next year,” she said in a speech in Delaware, according to prepared remarks. “I also expect housing inflation to continue to improve next year.”

Like Hammack, Paulson was not an FOMC voter in 2025 but will be next year.

Goolsbee, however, is a voter and was one of three people to dissent from the majority’s vote to cut interest rates by a quarter-point on Wednesday. Unusually, there were dissents in both directions—Goolsbee and Jeffrey Schmid of the Kansas City Fed voted to keep rates flat, while Trump appointee, Fed Governor Stephen Miran, voted to lower them by a half-point.

Goolsbee said he was open to cutting interest rates later in the year, but that for now, the available economic data didn’t justify the cut. Key economic reports on inflation and employment were delayed by the government shutdown in October and November, and won’t come out until next week.

“I believe we should have waited to get more data, especially about inflation, before lowering rates further,” he wrote in a statement.