The only official who voted against the interest rate cut in December by the Federal Reserve has spoken out: monetary policy needs to be moderately restrictive for a period of time.

Beth Hammack, the Cleveland Fed President and the only dissenting vote at the December interest rate meeting, said that inflation may be higher than 2% next year. Mary Daly, the San Francisco Fed President and a dovish voter, said that future interest rate decisions can return to a more classical progressive mode.

On December 20th local time, Hamak expressed in a recent statement that given the healthy labor market, it is important to continue to focus on inflation returning to 2%. In order to achieve this goal, monetary policy needs to remain moderately restrictive for a period of time. She estimated that monetary policy is not far from a neutral position, and she tends to maintain a stable policy until further evidence indicates that inflation is returning to the 2% target.

“Based on recent strong economic data and loose financial conditions, maintaining the target range of the federal funds Interest Rate at 4.5%-4.75% is the ‘best choice’ at this week’s meeting. I estimate that with a healthy labor market, next year’s inflation rate will be somewhat higher than 2%,” said Hamak in a statement.

On the same day, Daly said in an interview that after careful consideration, she believed that a 25 basis point interest rate cut in December was appropriate, which is an adjustment to the Intrerest Rate level to accommodate the economy.

“My prediction is that the number of interest rate cuts next year will be much less than expected,” Daly said, and the focus of the next stage is the future information. The Fed can return to a more classic gradualism mode. Daly is usually seen as a dovish member."

According to data released by the US Bureau of Labor Statistics, the US CPI rose by 2.7% year-on-year in November, in line with market expectations of 2.7%, and up from the previous value of 2.6%; the core CPI rose by 3.3% year-on-year, in line with market expectations of 3.3%, and unchanged from the previous value of 3.3%. The US non-farm payrolls increased by 227,000 in November, higher than the expected 220,000; the unemployment rate was 4.2%, higher than the market expectation of 4.1%, and up from the previous value of 4.1%.

In the early morning of December 19th Beijing time, the Federal Reserve lowered the target range for the federal funds interest rate by 25 basis points to 4.25%-4.5%, which is in line with market expectations. The interest rate decision did not pass unanimously, with Fed Governor Hammack voting against it. She preferred to maintain the target range for the federal funds interest rate at 4.5%-4.75%.

The dot plot released on the same day as the interest rate decision showed that the Fed reduced the number of future rate cuts, with the number of rate cuts in 2025 reduced from the 4 times forecasted in September to 2 times, and the median forecast of the Interest Rate was raised from 3.4% in September to 3.9%.

Source: Sina

Author: The Paper