Three Federal Reserve officials said they did not support the US central bank’s decision to cut interest rates this week, citing inflation that remains too high.

Dallas Fed President Lorie Logan and her Cleveland counterpart, Beth Hammack, said Friday they would have preferred to hold rates steady. Both were speaking at a conference in Dallas, following a statement earlier in the day from Kansas City Fed President Jeff Schmid outlining the reasons for his dissent against Wednesday’s rate cut.

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The remarks from Logan, Hammack and Schmid were the first salvo in what is likely to be an intense debate over the next six weeks before the central bank’s next policy meeting in December, between officials who see a need for more easing to support the labor market and those who are more concerned about inflation.

“I’d find it difficult to cut rates again in December unless there is clear evidence that inflation will fall faster than expected or that the labor market will cool more rapidly,” Logan said in remarks prepared for a speech at the conference.

Fed officials cut their benchmark rate this week by a quarter percentage point for a second month in a row after a sharp slowdown in hiring over the summer raised concerns about the labor market. Chair Jerome Powell, speaking to reporters Wednesday after the decision, said another cut in December was “not a forgone conclusion,” noting a “growing chorus” felt it might be time to pause.

That led to a sharp adjustment in the bond market, where investors had been pricing in near certainty of another quarter-point cut in December.

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While Logan and Hammack don’t vote on monetary policy this year, they participate in Federal Open Market Committee discussions and will rotate onto the voting panel in 2026. Two Fed officials voted against the decision at this month’s meeting, with Schmid preferring to hold rates steady and Governor Stephen Miran dissenting for a second straight meeting in favor of a larger, half-point cut.

“By my assessment, the labor market is largely in balance, the economy shows continued momentum, and inflation remains too high,” Schmid said in his statement.

Neutral Rate

Part of the debate among officials involves differing assessments of the so-called neutral rate, the theoretical level of interest rates which would neither stimulate nor restrain economic growth.

Wednesday’s rate cut brought the target range for the benchmark rate to 3.75% to 4%. Projections published in September showed the committee’s estimates of the neutral rate ranged from a bit above 2.5% to a bit below 4%.

Hammack, during a panel discussion at the Dallas conference with Atlanta Fed President Raphael Bostic, said she believes Wednesday’s rate cut brings the Fed’s benchmark to “right around” her own estimate of the neutral rate.

“I do think we need to maintain some amount of restriction to help get inflation back down to target,” Hammack said. Bostic, on the other hand, said he “eventually got behind” the decision to cut rates because he believes monetary policy is still “in restrictive territory,” even after the reduction.

Powell on Wednesday said his own assessment was that policy is still “modestly restrictive,” though he acknowledged that rates are now in the range where “many estimates of the neutral rate live, in that 3 to 4% area.”

“Now, we’re 150 basis points closer to neutral — wherever that may be — than we were a year ago,” Powell said. “And so there’s a growing chorus now of feeling like maybe this is where we should at least wait a cycle” before considering another rate cut, he said.

Balance Sheet

The Fed on Wednesday also announced it would stop its three-year effort to reduce the size of its balance sheet on Dec. 1, following elevated short-term interest rates in money markets over the last several weeks.

Logan, who spent the bulk of her career before joining the Dallas Fed on the central bank’s markets desk in New York, said she supported that decision, adding that it should help mitigate funding pressures.

While the Fed said it will continue unwinding its portfolio of mortgage-backed securities, reinvesting the proceeds into Treasury bills, it stopped short of announcing additional liquidity measures to help ease funding costs.

“Once runoff ends, the Fed can further reduce reserve supply by holding assets constant for a time and allowing decreases in reserves to offset trend growth in other liabilities such as currency,” Logan said.

“But if the recent rise in repo rates turns out not to be temporary, the Fed in my view would need to begin buying assets to keep reserves from falling further and maintain an ample supply of reserves.”