(Kitco News) - Federal Reserve Chair Jerome Powell may be signaling patience on rate cuts, but former Dallas Fed advisor Danielle DiMartino Booth says the central bank is falling behind the curve - again.
In a wide-ranging interview with Kitco News, DiMartino Booth said Powell is “disregarding and dismissing a lot of the data” showing clear signs of economic deterioration. Her comments came as Powell testified before Congress, warning that inflation “could resurface” in the second half of 2025, and that the path ahead remains “highly uncertain.” Bond markets, however, continue to price in two rate cuts by year-end, according to Bloomberg swap data.
“I think it is the latter,” DiMartino Booth said when asked whether Powell’s caution is warranted or misplaced. “Chair Powell continues really to disregard and dismiss a lot of the data that we've seen.” She pointed to fresh declines in home prices during the peak of the spring selling season as a rare and troubling sign. “That's what economists call a trend,” she added.
According to the S&P CoreLogic Case-Shiller Index, home prices fell for the second straight month in April, dropping 0.31% on a monthly basis. The FHFA also reported a 0.4% decline in its home price index. “That is going to show up in inflation metrics,” DiMartino Booth said. “It is going to overwhelm - because it's the highest weight in inflation - any kind of a tariff upward pressure.”
She also raised alarms over labor market data revisions. “This is a systematic downward revision of payrolls unlike anything we've ever seen in U.S. history,” she said, referencing Bureau of Labor Statistics data showing 800,000 fewer jobs created through March 2024 than previously reported. “The onus really is on Fed policymakers to be paying heed to other types of indicators.”
One such indicator is student loan delinquencies. DiMartino Booth cited TransUnion data showing more than 6 million borrowers are now 90 days behind on their federal student loans - a number that has surged from just 1.2 million in May. “Another 2 million could default in July,” she warned. “We're not talking about the lowest income earners. We're talking about individuals who make higher salaries and therefore contribute more to U.S. consumption.”
The credit crunch is broader than just student debt. “Ask anybody who's trying to run a small business, ask anybody who's paying a 30% rate on their credit cards to borrow - they'll tell you if Fed policy's too tight,” she said.
Equifax recently reported small business defaults have hit their highest level since 2020, and New York Fed data shows auto and credit card delinquencies rising sharply. “We're going to start to see the fallout in the second half of 2025 and into 2026,” DiMartino Booth said.
She also pushed back on the idea that tariffs or energy prices should delay policy action. While Powell refused to directly address President Trump's new tariffs during his testimony, DiMartino Booth said the pricing power assumption embedded in inflation forecasts is “dangerous.”
“There are record numbers of multiple job holders. Aggregate income is declining,” she said. “The graver risk right now is that of margin squeeze.”
Asked whether the Fed was once again misjudging the economy, she said: “It is clear even through the backward-looking prism of GDP that the U.S. economy is slowing.”
While Powell said rates are only “modestly restrictive,” DiMartino Booth said real-world impacts tell a different story. “Monetary policy is prohibitively tight,” she said. “Companies are laying off individuals. Those headlines don't seem to stop.”
Still, she stopped short of forecasting a severe downturn. “I think stabilization is about as much as we could hope for,” she said. “Until I see [employment data] begin to turn... the risk is to the downside.”
Watch the full interview on the Fed and the economy above.