The rate cut skeptics' case

The hawks on the Federal Open Market Committee see resilient growth, booming financial markets, too-high inflation, and a labor market that is more or less chugging along. That, they argue, means cutting rates further right now would be a mistake.Why it matters: In the last couple of months, markets have been buoyed by the prospect of a glide path toward cheaper money. A significant swath of Fed policymakers are saying "not so fast," though it is uncertain how much sway they will have at decision time in December and beyond.Driving the news: Kansas City Fed president Jeff Schmid is out with an essay this morning explaining why he dissented from Wednesday's interest rate cut.Separately, Dallas Fed president Lorie Logan said in a speech this morning that she "would have preferred to hold interest rates steady" at the meeting (she doesn't have a vote on the policy committee this year).Shortly after this newsletter sends, Cleveland Fed president Beth Hammack, who has become a hawkish voice, and Atlanta Fed president Raphael Bostic, a swing voter, are to participate in an on-stage chat.What they're saying: "Talking to contacts in the Kansas City Fed's district, I hear widespread concern over cost increases and inflation," Schmid writes."Rising healthcare costs and insurance premiums are top of mind. In the data, inflation is spreading across categories, both goods and services," he adds, noting that inflation has been above-target for more than four years."Financial market conditions appear to be easy across many metrics," including near-record highs in the stock market and abundant issuance of junk bonds. Capital spending is growing rapidly, he notes, amid the AI boom."I do not think a 25 basis-point reduction in the policy rate will do much to address stresses in the labor market that more likely than not arise from structural changes in technology and demographics," Schmid says."With inflation still too high, monetary policy should lean against demand growth to allow the space for supply to expand and relieve price pressures," Schmid writes.Zoom out: "The labor market remains balanced and cooling slowly," Logan said in a speech in Dallas. "Inflation remains too high, taxing the budgets of businesses and families, and appears likely to exceed the FOMC's 2% target for too much longer.""This economic outlook didn't call for cutting rates," she said.Between the lines: The discussion of Fed policy the last couple of months has been dominated by Washington-based governors who have been raring to go on rate cuts.It starts with chair Jerome Powell, who all but pre-announced a September rate cut in his Jackson Hole speech in August.It also includes Christopher Waller and Michelle Bowman, both candidates to succeed Powell, and newly appointed governor Stephen Miran, who has crammed a whole lot of public speaking into his first few weeks on the job.The bottom line: Monetary policy is a committee decision, even if governors carry extra weight by virtue of always having a vote. A meaningful slice of that committee is against delivering the rate cuts the market covets.

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