Two Fed Officials Disagree With Decision To Cut Interest Rates

Esther George, John Williams and Jerome Powell, at Jackson Hole, Wyoming, August 24, 2018.

David A. Grogan | CNBC

Two Fed officials disagreed with the central bank's decision to cut interest rates Wednesday.

Both Boston Fed President Eric Rosengren and Kansas City Fed President Esther George voted to keep rates unchanged with a federal funds target rate of between 2.25% to 2.5%.

The Federal Open Market Committee, the Fed's policy arm, lowered its benchmark rate by a quarter point as an insurance policy, based on what could go wrong in the economy down the road. The FOMC slashed the target range for its overnight lending rate to 2% to 2.25% — 25 basis points below the previous level.

Since 1987, there have been one or more dissenters at 37% of Fed rate meetings. Economists said this week's two-day Fed meeting had a higher chance of splitting central bank officials because of the recent improvements in economic data. A divide between officials makes it harder for markets to chart the path of future Fed policy.

Rosengren and George had publicly questioned cutting rates ahead of this week's meeting. St. Louis Fed President James Bullard was also seen as a possible dissenter if the Fed went for a deeper rate cut. In late June, he said a 50 basis point move would be overdone.

New York Fed President John Williams surprised markets earlier this month when he said in a speech that "it's better to take preventative measures than to wait for disaster to unfold," adding to market expectations of a more aggressive 50 basis point rate cut. The Fed later said Williams was not talking about current policy in his comments. The following day, Boston's Rosengren appeared on CNBC and said he didn't see a need to trim the federal funds target rate range, which is now between 2.25 and 2.5%.

"Given that the economy is quite strong, given that I do think that inflation is going to be very close to 2%, and given that the growth in the economy is satisfactory, I think that's an environment where you don't have to take a lot of action," Rosengren said.

Wednesday's move marked the first reduction in the fed funds rate since 2008 when the U.S. economy was dealing with a financial crisis that threatened to upend the global economy. At the time, the FOMC took the rate from 1% down to a range of 0%-0.25%, where it stayed for seven years.

— CNBC's Patti Domm and Jeff Cox contributed reporting.

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