Fed fractures deepen as Michael Barr signals inflation concern

Investors now see about a 40% probability of a rate cut at the December meeting, according to pricing in futures contracts.

Barr supported the Fed’s cuts in September and October but had so far given no signal on December. His vote could prove pivotal as several of his colleagues have already declared that they favor or oppose a third straight rate reduction, making the outcome uncertain.

The Fed is, after a long government shutdown, finally receiving new official data, but so far it hasn’t done much to resolve the division among policymakers. The September jobs report, released Thursday by the Bureau of Labor Statistics, offered a mixed picture. Employers added 119,000 net new jobs — the best number since April — but August figures were revised downward and the unemployment rate rose slightly to 4.4%.

Following the release, Barr said he sees the labor market “kind of cooling,” with the economy creating jobs near the so-called break-even pace that keeps unemployment steady.

Also speaking Thursday, Cleveland Fed President Beth Hammack called the September jobs data “stale” and reiterated her opposition to additional rate reductions. She also said cutting rates could threaten financial stability.

“Lowering interest rates to support the labor market risks prolonging this period of elevated inflation, and it could also encourage risk-taking in financial markets,” Hammack said . “This means that whenever the next downturn comes, it could be larger than it otherwise would have been, with a larger impact on the economy.”

At a separate event in Indianapolis, Chicago Fed President Austan Goolsbee signaled he’s still apprehensive about delivering another rate cut in December.

Inflation “seems to have kind of stalled out and, if anything, given warnings of going the wrong way,” Goolsbee said. “So that makes me a little uneasy.”

Goolsbee is a voter on the Fed’s policy-setting panel this year. Hammack will be a voter in 2026.