The Federal Reserve is once again divided ahead of its policy meeting later this month. Two key voices on the Board of Governors — Stephen Miran and Christopher Waller — both agree that further monetary easing is needed, yet they sharply differ on the scale of action required.
In an interview with CNBC, Miran called for a 50-basis-point rate cut, arguing that such a move is necessary to realign policy with an economy that is beginning to cool.
“The current policy stance is overly restrictive,” Miran stated, adding that the neutral rate may have fallen due to structural shifts such as increased immigration and tighter regulations.
In contrast, Christopher Waller believes the Fed should take a more measured approach. He supports a 25-basis-point reduction, stressing the importance of keeping inflation under control before taking bolder steps.
“We don’t need to overreact,” Waller cautioned, emphasizing that an overly aggressive cut could undermine the Fed’s credibility if inflation flares up again.
Global Economic Risks and Data Uncertainty
Miran warned of mounting global slowdown risks, particularly stemming from U.S.–China trade tensions. Beijing’s restrictions on critical mineral exports, he said, are adding pressure to supply chains and could weaken the U.S. growth outlook. This, in his view, strengthens the case for the Fed to act faster and deeper.
However, many analysts doubt that a 50 bps cut is realistic under current circumstances. Delays in the release of key economic data — caused by partial government shutdowns — have left policymakers with limited visibility on the economy’s trajectory. As a result, a moderate 25 bps cut is seen as a safer move while awaiting more complete data.
Markets Tune In to the Dovish Tone
The internal debate within the Fed has captured Wall Street’s full attention. Expectations of continued rate cuts have driven short-term Treasury yields lower, while large-cap U.S. stocks have rallied modestly. The U.S. Dollar Index (DXY) also weakened amid speculation of a more accommodative policy path ahead.
According to Fed funds futures data, investors now see over a 70% probability of a 25 bps cut at the upcoming October FOMC meeting. Still, some market participants are preparing for an alternate scenario: if upcoming labor and inflation data show a sharper slowdown, the door for a 50 bps move remains open.
Preserving Credibility Under Pressure
The contrasting tones from Miran and Waller underscore the Fed’s biggest challenge — balancing price stability with economic growth. Acting too aggressively could reignite inflation, while being too cautious risks dampening activity and triggering a mild recession.
With inflation still hovering slightly above the 2% target and the labor market showing signs of cooling, the Fed stands at a fragile equilibrium. The decision later this month will send a powerful signal: will Jerome Powell and his team opt for a “slow but steady” strategy, or will they take decisive action to prevent a deeper downturn?
The split within the Fed highlights a new phase in U.S. monetary policy. After maintaining high interest rates for over a year, the focus has now shifted to the pace of easing — a crucial turning point that could shape the direction of the U.S. dollar, Treasury yields, and global risk sentiment in the months ahead.
Ade Yunus, ST, WPA
Global Market Strategist