A top Federal Reserve monetary-policy official said Friday that the economy's growth simply didn't warrant the central bank's decision this week to cut U.S. interest rates for the first time in more than a decade.
The official, Federal Reserve Bank of Kansas City President Esther George, said in a statement that she voted against the rate cut because "incoming economic data, and the outlook for economic activity over the medium term, warranted no change."
George was one of just two dissenters from the Fed's decision this week to cut the target lending rate by 0.25 percentage point, to a range between 2% and 2.25%. So her public explanation could provide clues to investors trying to gauge the degree of resistance within the Federal Reserve to further rate cuts later this year.
Fed Chair Jerome Powell, who heads the central bank's monetary-policy committee, said the "adjustment" was needed because of concerns about slowing economic growth overseas, which might ultimately spill over to the U.S. Some of those fears are tied to the potential ramifications of Trump's escalating trade war with China.
President Donald Trump, who is running for re-election in 2020, has called for the Federal Reserve to slash rates to support the economy, and he's become more vocal about his views as the impact fades from his $1.5 trillion of tax cuts in late 2017.
The central bank is supposed to remain free from politics, but Trump has complained that the central bank won't "support" him as he ratchets up a U.S. trade war with China.
Powell has repeatedly insisted that politics play no role in the Fed's decision, and he has fretted that inflation is running stubbornly below the Fed's 2% target.
But many economists say there's little urgency to boost inflation, since the target was arbitrarily set by the Fed in the first place, and since many households and businesses are benefiting from the subdued price increases.
George said she sees a "moderation" of economic growth this year, in line with an "outlook that calls for a gradual decline to a trend level over the medium term."
"There are certainly risks to the outlook as the economy faces the crosscurrents emanating from trade policy uncertainty and weaker global activity," George said in the statement. "Should incoming data point to a weakening economy, I would be prepared to adjust policy consistent with the Federal Reserve's mandates for maximum sustainable employment and stable prices."
Earlier Friday, the other dissenter, Federal Reserve Bank of Boston President Eric Rosengren, said in a statement that his vote to keep rates unchanged was also based on a view that the U.S. economy looks healthy.
But another concern is that, with stock markets already at record levels and borrowing costs are low; monetary stimulus by the Fed could eventually lead to "financial stability concerns," he said.
The expression refers to the idea that economic stimulus from the Fed could encourage more borrowing and additional risk-taking, fueling an asset-price bubble that might ultimately pop, and then lead to a new financial crisis.
"I do not see a clear and compelling case for additional monetary accommodation at this time," Rosengren said in the statement.
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