Fed Governor Stephen Miran is pushing hard for aggressive rate cuts. He dissented last week when the Fed cut rates by a quarter point, arguing for a half-point reduction instead.
Miran appeared on Bloomberg Monday restating his case that Fed policy remains too restrictive. He dismissed arguments that strong stock and corporate credit markets signal loose policy.
"Financial markets are driven by a lot of things, not just monetary policy," Miran said. Rising equity prices and narrow corporate credit spreads don't "necessarily tell you anything about the stance of monetary policy."
He pointed to interest-sensitive sectors like housing remaining weak and stress in parts of the private credit market as evidence policy is still too tight. Miran worries the Fed is heightening recession risk by not cutting faster.
Chicago Fed President Austan Goolsbee took the opposite position. He told Yahoo Finance he's "leery of further rate cuts" with inflation significantly above the Fed's 2% target.
"I'm not decided going into the December meeting," Goolsbee said. "I am nervous about the inflation side of the ledger, where you've seen inflation above the target for four and a half years, and it's trending the wrong way."
Goolsbee supported last week's quarter-point cut but clearly has reservations about continuing down that path if inflation keeps rising.
Both Miran and Goolsbee hold economics PhDs. Both chaired the White House Council of Economic Advisers - Miran during Trump's current term, Goolsbee during Obama's administration.
Yet they see the economy completely differently. Miran thinks policy is too restrictive and risks recession. Goolsbee worries about inflation accelerating and thinks the Fed should be cautious about cutting further.
This split reflects broader divisions among Fed officials that emerged during last week's policy meeting. The debate is intensifying ahead of December's meeting.
Making the Fed's job harder: The government shutdown has suspended economic data releases. Officials are navigating policy decisions with less information than usual about how the economy is performing.
That data blackout could make December's meeting especially contentious as policymakers argue from different perspectives without fresh numbers to settle disputes.
The Fed faces a classic dilemma: Cut rates to support growth or hold steady to fight inflation?
Miran's aggressive stance reflects concern the economy is weakening and the Fed needs to act before it's too late. His dissent for a larger cut shows how strongly he feels policy is too restrictive.
Goolsbee's inflation worries reflect the reality that despite multiple rate cuts, inflation remains stubbornly above target and appears to be accelerating. After 4.5 years of above-target inflation, he's understandably nervous about cutting too much.
Both have valid points. Housing and interest-sensitive sectors are struggling, supporting Miran's view. But inflation trending the wrong way validates Goolsbee's caution.
The Fed cut its benchmark rate to 3.75%-4% last week. Where it goes from here depends on which concern wins out - recession risk or inflation risk.
Miran being on leave from his White House economic adviser role adds political complexity. His push for aggressive cuts aligns with Trump administration preferences for lower rates. Goolsbee, aligned with Obama previously, takes a more hawkish stance.
The December meeting could be contentious. With officials split on whether policy is too tight or risks being too loose, and with economic data suspended during the shutdown, expect heated debate over the next move.
For markets, this Fed division creates uncertainty. Investors can't clearly gauge whether more cuts are coming or if the Fed is nearing the end of its easing cycle.
