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Fed Split Over December Rate Reduction: Employment Concerns Versus Inflation Targets

Fed Split Over December Rate Reduction: Employment Concerns Versus Inflation Targets

Bitget-RWA2025/11/25 00:52
By:Bitget-RWA

- Fed President Mary Daly advocates for a December rate cut to preempt sudden U.S. labor market deterioration, prioritizing job market risks over inflation. - Officials like Susan Collins and Christopher Waller show divided stances, with some favoring rate cuts as insurance against weakness while others urge caution to avoid limiting future flexibility. - The debate reflects broader FOMC tensions between stabilizing employment and curbing inflation, amid softer tariff-driven costs and a fragile "low-hiring

Mary Daly, President of the San Francisco Federal Reserve, has become a prominent supporter of lowering interest rates at the central bank’s December 9-10 session, pointing to increasing threats of a sudden downturn in the U.S. employment landscape. Speaking with the Wall Street Journal, Daly cautioned that the labor market could experience an abrupt shift, remarking that “it’s currently fragile enough that a sudden, nonlinear change is a real possibility”

. Her viewpoint highlights a growing emphasis on employment risks, despite inflation still exceeding the Fed’s 2% objective.

Daly’s approach differs from that of some other Fed officials, who remain more concerned about inflation. For example, Susan Collins, President of the Boston Fed, has advocated for holding rates steady, arguing that the job market is “slowing, but not at a rapid pace”

. At the same time, Fed Governor Christopher Waller, known for his dovish stance, has restated his backing for a 25-basis-point reduction in December, against further weakness in employment. This split reveals the broader uncertainty within the Federal Open Market Committee (FOMC) as policymakers balance the goals of supporting jobs and restraining inflation.

While Daly recognized that inflation is still a concern, she argued that the risks posed by a weakening labor market are more pressing than persistent price increases. She cited lower-than-anticipated tariff-related costs as a reason for easing inflationary pressures,

compared to the threat of a jobs downturn. Still, some critics caution that cutting rates too soon could reduce the Fed’s ability to respond if the economy picks up speed next year. certain members worry that acting prematurely on rates could “restrict future choices” if inflation or growth unexpectedly accelerates.

This discussion is unfolding against a backdrop of economic fragility. Daly described the current labor market as being in a “low-hiring, low-firing” balance, but warned that any increase in layoffs or slowdown in hiring could worsen the situation. She emphasized that the Fed can still reach its inflation target without causing higher unemployment, labeling any inability to do so a

. Waller shares this perspective, arguing that a December rate cut is justified by “soft” labor data and moderating inflation .

Political dynamics add another layer of complexity to the Fed’s decision-making. President Donald Trump has openly called for more aggressive rate reductions and promised to select a chair who would focus on lowering rates. Nonetheless, internal disagreements indicate that even with unified leadership, reaching consensus could remain difficult.

, “Powell is encountering more pushback within the Fed over the December decision than on any other issue during his nearly eight years in charge.”

With the FOMC meeting drawing near, investors will closely watch the Fed’s Beige Book and upcoming economic data for signals. Waller cautioned that the outcome in January might depend on a “wave” of postponed economic releases,

. For now, Daly’s advocacy for a December rate cut represents a proactive move to head off potential employment troubles, even as the Fed remains split on its next steps.

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Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.

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