The hawkish rise in the Fed's inflation intensifies internal divisions, and expectations of interest rate cuts in December fell to 50%

The Zhitong Finance App learned that recently, several Federal Reserve officials have voiced their cautious stance. On Thursday, Neil Kashkari, the governor of the Federal Reserve Bank of Minneapolis, said that he did not support the latest interest rate cut by the Federal Reserve, but he has yet to decide on the best course of action for the December policy meeting.

In an interview, Kashkari said, “The anecdotal evidence and data I have obtained suggest that economic activity is potentially more resilient than I expected.” He believes that this supports that the Federal Reserve should suspend interest rate cuts at the October meeting.

Kashkari said that since then, available data showed that the economic situation had “remained largely unchanged”. Regarding the interest rate decision meeting to be held from December 9 to 10, “Based on the data trend, I can put forward reasons to cut interest rates, or I can put forward reasons to keep interest rates unchanged; we will have to wait and see.”

Following the publication of this statement, Kashkari joined the ranks of many recent US Federal Reserve officials who have expressed doubts or direct opposition to the need to cut interest rates again in December. It's unclear whether they can persuade enough members of the Federal Open Market Committee to vote, as there are still many policymakers who are more concerned about the weakness of the labor market.

The Minneapolis Federal Reserve governor did not have the right to vote on interest rate decisions this year, but he participated in FOMC interest rate discussions.

Financial markets have taken note of recent comments from so-called “inflation hawks” within the Federal Reserve. According to the federal funds futures contract, investors have lowered the probability of cutting interest rates in December to about 50%. Before the Federal Reserve's October meeting, this probability was as high as 100%.

Data divergence

After the Federal Reserve made the decision to cut interest rates for the first time this year in September, Kashkari said he expected two more interest rate cuts in 2025. He said on Thursday that he thought the economic slowdown was more obvious at the time.

“There are many reports of low-income borrowers — subprime mortgage borrowers, sub-prime companies serving the secondary market — in trouble, so it does seem like there are some weak links in the labor market,” he said. “At the same time, many companies are doing well, and many companies are very optimistic about 2026.”

Kashkari is not the only one who wants to see more data before making a decision on the Federal Reserve's last meeting this year. San Francisco Federal Reserve Bank President Mary Daly also expressed uncertainty about the actions that should be taken at this meeting earlier on Thursday.

“It's still too early to clearly say 'no interest rate' or 'definitely cut interest',” Daly said at an event in Dublin, adding that the direction of policy changes appears to be “neutral.”

Other officials, however, showed their preference for the last meeting of the year, and a growing number of officials advocated keeping interest rates stable.

The hawkish faction

Boston Federal Reserve Governor Susan Collins said on Wednesday that interest rates should remain at current levels “for some time” to balance the inflation rate, which is still above the Federal Reserve's 2% target (currently 3%), and weak labor market recruitment. She said that still strong growth could slow or hinder progress in cooling price pressure.

Other officials who have been more active about cutting interest rates in the past, including Austin Goulsby of the Chicago Federal Reserve, have expressed similar views in recent weeks. They are joining a more hawkish faction within the Federal Reserve, which includes policy makers such as Jeff Schmid of the Kansas City Federal Reserve, Beth Hammark of the Cleveland Federal Reserve, and Lori Logan of the Dallas Federal Reserve, all of which have warned against cutting interest rates again.

Meanwhile, Federal Reserve Governors Stephen Mian, Christopher Waller, and Michelle Bauman advocated cutting interest rates. Among them, the newest US Federal Reserve official Mian (appointed by US President Donald Trump earlier this year) said that the inflation data was better than expected, which supported lower interest rates.

As the shutdown of government agencies ends and the publication of official statistics resumes, Federal Reserve officials will once again be able to understand the state of the US economy. However, it is unclear how much new data will be available in time for the December meeting.