Should the Federal Reserve pay more attention to inflation? At least three central bankers believe so

• Three Federal Reserve officials said Friday that they disagreed with the Fed’s decision to cut the central bank’s key interest rate by a quarter point this week.
  

• The Federal Reserve cut interest rates to preserve the labor market, and the divergent opinions reflect the difficulty of its dilemma as it pursues a dual mandate of maintaining high employment and low inflation.
  

The Federal Reserve is relenting too soon in its war on inflation, according to an increasingly vocal contingent of Fed officials.

Three Federal Reserve officials said Friday they disagreed with the Federal Open Market Committee’s decision to cut its benchmark interest rate by a quarter point this week. One member, Kansas City Federal Reserve President Jeffrey Schmid, voted to keep rates steady, but was outnumbered.

Their counterparts, Beth Hammack of the Cleveland Fed and Lorie Logan of the Dallas Fed, participated in the Federal Open Market Committee meeting, but are not voting members this year. (The 12-member FOMC grants voting status to four of the 11 regional Fed chairs on a rotating basis.)

The dissenting comments illustrated the dilemma facing the central bank. The Federal Reserve has the dual mandate of keeping inflation stable and employment high. Pressures on both sides of the mandate are pulling the central bank in opposite directions on its benchmark interest rate.

Inflation has exceeded the Fed’s target of a 2% annual rate for more than four years, and tariffs are pushing it in the wrong direction, something the Fed would normally address by raising rates. Meanwhile, President Donald Trump’s trade wars are fueling uncertainty that has dampened job growth and raised fears of rising unemployment, which the Federal Reserve is countering by lowering rates.

Divisions within the Federal Open Market Committee make the Federal Reserve’s interest rate movements much less predictable than they usually are.

Fed members disagree on which problem is more urgent for the Fed to address, since it cannot do both at once. Federal Reserve Chair Jerome Powell said Wednesday that there were “very different views” among participants in the FOMC’s two-day monetary policy meeting this week.

“I would have preferred to hold rates steady at this meeting and not cut them,” Hammack said in a fireside chat in Dallas. “We’re being challenged on both sides of the mandate. We have inflation, and it’s too high. It’s about a percentage point above our target and it’s been there for a long period of time.”

Speaking at the same fireside chat, Atlanta Fed President Raphael Bostic said he was also worried about inflation but was persuaded to vote for a cut because he believes the current level of the federal funds rate, in a range of 3.75% to 4%, is still high enough to discourage credit and restrict economic activity. The federal funds rate directly influences borrowing costs for short-term loans.

Schmid said in a statement that he would have preferred to keep rates stable.

“By my assessment, the labor market is largely balanced, the economy is showing continued momentum and inflation remains too high,” he said.

Dallas Federal Reserve President Lorie Logan agreed.

“I would have preferred to keep interest rates steady at this week’s FOMC meeting,” he said at an event in Dallas, according to prepared remarks. “Congress gave the FOMC a dual mandate: to pursue maximum employment and stable prices. The labor market remains balanced and slowly cooling. Inflation remains too high, taxing the budgets of businesses and households, and appears likely to exceed the FOMC’s 2% target for much longer. This economic outlook did not call for rate cuts.”

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