Federal Reserve spokesperson: The interest rate path has reached a critical turning point, with the Federal Reserve partially shifting from signaling rate cuts to adopting a neutral wait-and-see stance

BlockBeats News, May 2nd, Nick Timiraos, known as the “Fed’s mouthpiece,” wrote that the internal debate at the Federal Reserve over the path of interest rates has reached a critical turning point — officials are no longer arguing about when to resume rate cuts, but are beginning to discuss the conditions that might necessitate rate hikes. In the statement after Wednesday’s policy meeting, three regional Fed presidents—Dallas Fed President Logan, Cleveland Fed President Harker, and Minneapolis Fed President Kashkari—formally voiced objections, opposing the language that implied “the next move is more likely to be a rate cut.” Outgoing Chair Powell acknowledged that the committee had engaged in “intense discussions,” and although the relevant guidance has not yet been removed for procedural reasons, he clearly stated that the committee’s stance is shifting from accommodative to neutral, and admitted that the opposition’s arguments “are entirely valid.” This statement indicates that the Fed has moved from the phase of signaling rate cuts to a more neutral wait-and-see stance.

The core factor driving this shift is the ongoing energy shock caused by the substantial closure of the Strait of Hormuz. Unlike past one-time price fluctuations that could dissipate on their own, this supply chain disruption could keep energy costs high for months, enough to permeate broader prices and raise inflation expectations. Kashkari further outlined the rate hike scenario in a speech on Friday: if the Strait cannot quickly restore navigation, even at the cost of further weakening the labor market, a series of rate hikes may be necessary. Former senior Fed economist William English pointed out that the current federal funds rate, remaining unchanged amid rising inflation, effectively amounts to passive easing, which becomes increasingly unsustainable the longer it lasts.

It is noteworthy that the three officials raised objections to policy language rather than actual interest rate actions, which is very rare in Fed history; the last similar case dates back to September 2020. This debate will be continued by Kevin Woor, who is set to succeed as Chair in mid-May. Powell’s term is about to end, and the Fed’s next policy meeting will be held about a month after his departure.