The Fed Is Running Out of Reasons to Cut Rates

CNBC reported Friday that the case for Fed rate cuts is eroding fast, with fresh labor market data giving policymakers little urgency to ease borrowing costs anytime soon.

Jobs Hold Steady, Inflation Does Not

April’s nonfarm payrolls came in at 115,000 new positions. That figure is modest but enough to signal stability. The labor market is no longer flashing distress signals that would pressure the Fed to act. Inflation is a different story entirely. The consumer price index for March registered 3.3%, well above the Fed’s 2% target. Prices have now exceeded that goal for five consecutive years.

Chicago Fed President Austan Goolsbee told CNBC the trend is worrying. He noted that inflation stopped declining last year and has risen over the past three months. He also warned that price pressures extend beyond gasoline and tariffs. Services costs are increasingly driving the problem upward.

FOMC Hawks Gaining Ground

At last week’s policy meeting, the Federal Open Market Committee voted to hold rates steady. Three regional Fed presidents dissented from the post-meeting statement, not the hold decision itself. Their objection targeted forward guidance language that markets had widely read as signaling a future cut. That internal friction suggests the committee’s hawkish wing is gaining influence heading into the June meeting.

Goldman Sachs Asset Management’s Lindsay Rosner, head of multi-sector fixed income, said the Fed will now pivot attention toward containing inflation upside. She added that the FOMC may strip easing language from its June statement entirely.

Background: Five Years Above Target

The Fed has struggled to return inflation to 2% since the post-pandemic price surge began. Rate hikes through 2022 and 2023 slowed price growth but did not finish the job. The FOMC began cutting in late 2024, trimming rates before pausing amid renewed inflation concerns. Fed funds futures now show traders pricing out any cut through April 2031, with rate hike odds rising across longer time horizons.

Scott Clemons, chief investment strategist at Brown Brothers Harriman, said the data afford the Fed unlimited patience. Nothing in the current economic picture demands lower rates, he argued.

Trouble Ahead for Incoming Chair Warsh

The shifting backdrop creates a delicate situation for Fed Chair nominee Kevin Warsh. President Donald Trump nominated Warsh with expectations for looser monetary policy. Warsh has publicly advocated for a lower funds rate and argued the Fed can manage inflation while easing. But with price pressures sticky and payrolls stable, his room to maneuver may be narrower than either he or the White House anticipated.

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