MNI INTERVIEW: Powell Won't Signal String Of Fed Cuts-Lockhart

Federal Reserve Chair Jerome Powell will justify next week’s widely expected interest rate cut by citing rising downside risks to employment but refrain from signaling a string of cuts beyond September because the Fed must also contend with inflation heading in the wrong direction, former Atlanta Fed President Dennis Lockhart told MNI. 

"A 25 bp cut would be a nod to the weakening employment picture, and temporarily at least subordinating the fight against elevated inflation to shoring up support for the employment side of the mandate," he said in an interview. 

"But the committee also can't ignore the inflation side. There's been no real progress on bringing inflation down to 2% for quite some time."

PAUSES AND SKIPS

The former policymaker added that "we’re more likely to see pauses and skips in the coming meetings to evaluate the situation because the two mandated objectives are more now in conflict with each other."

The Cleveland Fed Inflation Nowcast expects headline and core PCE inflation to have risen to 2.8% and 3.0% in August, from 2.6% and 2.8% in June. 

The median for the updated dot plot may show either one or two more cuts for the remaining three months of 2025, Lockhart said. (See: MNI INTERVIEW: Fed To Cut Every Meeting To End Year - Bullard)

"I do not think this committee is comfortable with the notion that they're beginning a multi-meeting cutting campaign, unless the economy weakens dramatically," he said. "They certainly don’t want to signal – for inflation expectations purposes and for their credibility as an inflation-fighting central bank – that this is a turn to basically prioritize employment substantially over inflation." 

JOBLESS GROWTH

Despite the dismal hiring figures in recent months and substantial downward revisions to job gains in the year through March, individual FOMC members may still see the labor market as a glass half full, Lockhart said. (See: MNI INTERVIEW: US Job Market At Potential Pivot Point - Shin)

"This is a hard economy to read," he said, noting second quarter GDP growth was revised higher even as job creation was much weaker than thought. 

Lockhart does not see a recession looming, but a stagnant labor market where employers are hesitant to hire or fire workers against an uncertain outlook may persist, he said. 

"It's increasingly a jobless growth picture. But as long as people are employed, they will spend and we’ll have the consumer motor of the economy continue to perform."