16 Oct 2025
Federal Reserve officials present divergent views on the necessity and pace of interest rate reductions, with some advocating for cautious, gradual cuts while others push for more aggressive actions amidst economic uncertainties. Concurrently, the NAHB housing index reveals improved homebuilder confidence driven by declining mortgage rates, although challenges in market conditions persist.
Fed Board member Waller suggested officials could support the weakening market by gradually reducing interest rates in 25 basis point steps, emphasizing the importance of cautious action and observation before further decisions.
Powell's recent statements align with Waller's view, indicating a quarter-percent rate cut is likely at the end-of-month meeting, which is the probable rate reduction expected this year due to a notable slowdown in US employment growth.
Fed officials emphasize remaining vigilant regarding higher inflation risks, as inflation continues to exceed the Federal Reserve's target, despite a slowdown in employment growth.
Waller argued for caution, noting some data indicates strong GDP growth while other indicators point to a weakening labor market; he suggested the Fed must focus on the labor market as inflation is projected to move towards the two percent target, excluding tariff effects.
A government shutdown could reduce current quarter economic growth by several tenths of a percentage point; a short shutdown might see its effects compensated in Q1 2026, but a prolonged shutdown leading to permanent workforce reduction would increase costs and amplify negative economic impacts.
Waller is considered a potential successor to Powell as the next Fed Chair, noting his policies are generally dovish.
Mr. Besant mentioned a final list of five candidates for Powell's replacement would be presented to Trump after Thanksgiving, awaiting the final decision.
Richmond Fed President Barkin holds positive views on employment and inflation, observing a strong labor market, robust consumer demand, and cautious pricing by businesses.
Barkin believes increased productivity and consumer resistance to rising prices contribute to inflation moderation, preventing a severe downturn despite current instability.
Fed Board member Miron stated that US-China trade tensions heighten uncertainty in the economic growth outlook, necessitating faster interest rate reductions.
Miron believes downside risks have significantly increased compared to the previous week, urging policymakers to reflect this shift in their strategies by reaching a neutral monetary policy level more quickly.
Miron advocates for aggressive rate cuts, having previously suggested three 0.5% reductions, and consistently supported significant interest rate decreases, even voting for a 0.5% cut in a past meeting when a 0.25% cut was approved.
Miron faces criticism for his views aligning with Trump's, given his past role in economic advisory and his consistent advocacy for aggressive rate cuts, raising questions about his independence from the administration; he has also expressed a fear of missing out (FOMO) regarding his former colleagues' activities since leaving the White House.
Miron suggested stopping the Fed's balance sheet reduction process, or quantitative tightening, in the near future by halting asset sales, aligning somewhat with Powell's recent statements regarding the utility of further balance sheet contraction.
The NAHB housing market index for October showed US homebuilder confidence reaching its highest growth since early 2004, primarily due to lower mortgage rates, which partially alleviated affordability issues.
The report indicates most builders still perceive market conditions as weak, yet the overall trend has improved, with future sales expectations reaching a January high and current sales and buyer traffic reaching an April high.
Despite falling mortgage rates, many buyers await further reductions, and while September saw mortgage costs at a one-year low, boosting demand, a significant increase in purchases has not occurred.
Approximately 36% of builders lowered prices and 65% used sales incentives to attract buyers, with the strongest growth observed in the Northeast and Southern US, while growth was slower in the West and Midwest due to persistent high mortgage rates affecting buyer enthusiasm.
No other major economic data was released later in the day, as anticipated releases like PPI or retail sales were postponed due to the ongoing government shutdown, a situation that may continue if the shutdown persists.
The best approach involves cautious action, reducing rates by 25 basis points, and observing subsequent developments before making further decisions.
| Official/Indicator | Key Stance/Finding | Rationale/Implication |
|---|---|---|
| Waller (Federal Reserve) | Advocates for cautious, gradual 25 basis point interest rate cuts. | Avoids mistakes, allows observation of economic data; aligns with Powell's views; acknowledges slowing employment growth but warns of persistent inflation risks. |
| Miron (Federal Reserve) | Pushes for aggressive, faster interest rate cuts (e.g., three 50 basis point reductions). | Increased uncertainty from US-China trade tensions and rising downside risks; criticized for views aligning with Trump's and questioning independence; also suggests halting balance sheet reduction. |
| Barkin (Richmond Fed) | Holds positive views on employment and inflation, noting strong market dynamics. | Robust consumer demand, cautious pricing by businesses, and increased productivity contribute to inflation moderation. |
| NAHB Housing Market Index | Homebuilder confidence highest since early 2004. | Primarily driven by lower mortgage rates, alleviating affordability issues; market perceived as weak overall but showing improvement; builders offer incentives, but buyers still await further rate reductions. |
| Government Shutdown | Impacts economic growth and data releases. | Could reduce current quarter GDP growth; prolonged shutdown leads to permanent force reduction and increased costs; causes postponement of key economic data (e.g., PPI, retail sales). |
