Oct 31 (Reuters) - A clutch of Federal Reserve bank presidents on Friday aired their discomfort with the U.S. central bank's decision to cut interest rates this week, saying the labor market doesn't need the support of lower borrowing costs and inflation is too high to warrant such a move.
The pointed remarks suggest a rising bar for another rate reduction at the Fed's Dec. 9-10 meeting and underscore how difficult it may be for Fed Chair Jerome Powell, in the final six months of his term, to forge a consensus on policy across a yawning divide within the central bank's policymaking ranks.
"I did not see a need to cut rates this week," Dallas Fed President Logan told a banking conference on the first day that Fed policymakers are released from the central bank's post-policy-meeting communications blackout and are free to speak their minds.
"And 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."
BARELY RESTRICTIVE RATE POLICY
"I would have preferred to have held rates steady at this meeting," Cleveland Fed President Beth Hammack said at the same conference. Like Logan, she does not have a vote on policy this year; both will have a vote next year.
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"Given the move that we just made, I think we're right around my estimate of neutral: I think we're barely restrictive if at all," Hammack said. "And so I do think we need to maintain some amount of restriction to help bring inflation back down to target."
On Wednesday, after the central bank's policy-setting committee voted 10-2 to lower its benchmark interest rate to the 3.75%-4.00% range, Fed Chair Jerome Powell delivered an unusually clear warning to markets: given "strongly differing views" about how to proceed in December, he said, a rate cut was "not a foregone conclusion, far from it."
Atlanta Fed President Raphael Bostic said he was glad the chair had added those words - a rare instance of the Fed chair using prepared verbiage to guide expectations for the policy rate path that may not otherwise have been evident.
Financial markets pared what had been near-certain pricing for a December rate cut after Powell's remarks, although bets still reflect twice as high chance of a rate cut as not.
"I thought that the chair pretty accurately reflected the range of views that are on the committee, and that was information that needed to be out into the public domain," said Bostic, whose turn to vote at the Fed policymaking table next comes in 2027.
Bostic has said for most of this year he felt the Fed would need to cut just once this year, as it did in September.
EVENTUALLY GOT BEHIND IT
Of the rate cut this week, "I eventually got behind it ... because I still think we're in restrictive territory, and that to me is the most important thing: we can't really signal or forget that inflation is a significant problem," Bostic said. "But with each step, we get closer and closer to neutral in ways that make me uncomfortable."
Kansas City Fed President Jeffrey Schmid, who does have a vote on the policy-setting committee this year and dissented on this week's move, explained on Friday in a written release that he, like the other three policymakers speaking Friday, feels the economy has momentum and the labor market is largely in balance.
Any weakness, he said, is "more likely than not" due to structural changes in technology and demographics rather than slowing underlying demand.
"I do not think a 25-basis-point reduction in the policy rate will do much to address stress in the labor market," Schmid said.
A cut, however, "could have a longer-lasting effect on inflation if the Fed's commitment to its 2% inflation target comes into question," he said.
Fed Governor Stephen Miran also dissented this week, as the lone policymaker in favor of a larger half-percentage-point cut.
LABOR MARKET RISKS REMAIN, BUT INFLATION A BIGGER PROBLEM
Logan and Hammack notably both said they were sensitive to the risk of labor market weakness, the reason that Powell gave for this week's rate cut, and both said they were watching whether recent announcements of large layoffs by major companies could set a trend.
"The risks to the labor market do lie mainly to the downside," Logan said. But "the remaining risks to employment are ones we can monitor closely and respond to if they are becoming more likely to materialize, not ones that currently warrant further preemptive action."
All four policymakers on Friday stressed that inflation is too high and too slow to return to the Fed's 2% target.
With the government shutdown pausing official economic data releases, Fed bank presidents will play a key role gathering data from their business and community contacts to gauge the state of the job market and persistence of price pressures.
Bostic said he was hopeful that what those efforts may turn up will help bridge the clear internal divide on Fed policy.
"Trying to get data and have the data inform us can actually help us come to a closer appreciation and agreement on where the world is, so that we can coalesce around an appropriate path for policy," he said. "And that's really going to be our task. That's always our task; we're going to have to double down on it."
Reporting by Ann Saphir and Howard Schneider and Michael S. Derby; Editing by Chizu Nomiyama, Paul Simao and Nick Zieminski
