Fed Split: Inflation Hardliners and Employment Advocates Disagree on Interest Rate Reduction

The U.S. Federal Reserve is grappling with increased uncertainty ahead of its December policy meeting, as essential economic indicators—such as October’s employment and inflation data—may be postponed or unavailable due to the recent government shutdown.

on Wednesday that these vital statistics might not be released in time for the Fed’s deliberations, making it more difficult to evaluate the state of the economy and fueling a contentious debate among central bank leaders.

Fed policymakers now face a delicate challenge, weighing inflationary threats against concerns about the job market.

the uncertainty, saying that making a decision on December’s policy is “premature” without updated figures. At the same time, of keeping interest rates unchanged, pointing to “persistent inflation” and insufficient labor data as reasons to hold off on easing. Her position represents a growing group of “hawks” at the Fed who warn that further rate cuts could worsen inflation.

This split is reflected in market sentiment, with the likelihood of a December rate cut now at about 55%, a decline from earlier optimism

. This change follows Collins’ comments and similar caution from other Fed members, such as St. Louis Fed President Alberto Musalem, who cautioned against making policy “too accommodative,” and Fed Vice Chair Philip Jefferson, who stressed the importance of caution given the lack of data . , saying that another rate cut is “far from” guaranteed and noting the difficulty of managing internal disagreements.

With official data unavailable, the Fed has turned to alternative sources, such as private surveys and anecdotal reports, to assess economic trends. However, these alternatives do not offer the same depth as the delayed government releases. For example,

that prices for 55% of Consumer Price Index items are increasing at over 3%, exceeding the Fed’s 2% goal. While these findings are useful, they contribute to the uncertainty about where inflation is headed.

This situation highlights the broader difficulties the Fed faces as it tries to steer a fragile economy. Some members, like Daly, are open to rate cuts if justified by new information, while others, such as Collins, insist that holding rates steady is crucial for keeping inflation in check. The debate is further complicated by political factors:

over the Fed, including the authority to select its next chair, sparking concerns about the central bank’s autonomy.

As the December 9-10 meeting nears, the Fed’s ultimate decision will depend on whether any new data—if released—clarifies the outlook for inflation and employment. For now, the lack of October’s reports leaves officials in a difficult spot, and markets are preparing for a policy decision as uncertain as the data itself.