The Federal Reserve is standing on a knife’s edge — torn between fears of a faltering job market and the threat of runaway inflation. And with its next big decision just weeks away, the internal divide is growing clearer.
New York Fed President John Williams — one of the central bank’s most influential voices — has openly signaled that more interest rate cuts are on the table. Speaking to The New York Times, Williams emphasized that the labor market’s recent cooling trend is his top concern. In his view, the slowdown in hiring poses a greater immediate risk than the possibility of inflation heating up. He also dismissed earlier fears that former President Donald Trump’s tariffs would drive prices significantly higher, saying he sees little evidence of new inflationary pressure ahead.
San Francisco Fed President Mary Daly shares a similar outlook. In remarks from California on Thursday, she warned that the job market has reached a "worrisome" tipping point that demands careful risk management. Daly explained that the rate cuts already implemented — and the ones the Fed has hinted could follow — are strategic moves meant to balance the Fed’s dual mandate: keeping inflation in check while ensuring steady employment.
But not everyone at the Fed is on board with further cuts. Fed Governor Michael Barr, in his first monetary policy speech since June, leaned firmly toward the side of caution. While acknowledging that the labor market is in a relatively balanced state, Barr stressed that inflation remains a serious threat. He urged the Federal Open Market Committee (FOMC) to wait for additional data before making another move — effectively suggesting the Fed should avoid getting ahead of itself.
This split in perspectives is becoming more pronounced. At last month’s meeting, the FOMC voted 11-1 to cut rates by a modest quarter point — an effort to guard against labor market weakness. Yet meeting minutes later revealed deeper disagreements, with some members questioning whether cuts were necessary at all. Still, the majority believes at least two more small reductions may be needed before year’s end.
Williams is aligned with that outlook, provided the economy behaves as he predicts — inflation edging toward 3% (excluding tariff effects) and unemployment creeping above its current 4.3%. Market traders seem convinced too, with futures pricing in a roughly 95% likelihood that the Fed will trim rates again at its October 28–29 meeting.
However, Powell, as Fed Chair, will have to rally hesitant members to secure that outcome. Even as stock markets soar — partly thanks to excitement over artificial intelligence — leaders like Williams see weak labor indicators as a stronger policy driver than rising asset prices.
Barr, meanwhile, remains firm in his inflation concerns. He diverged from Powell’s view that tariff-related price hikes would be a one-off event, instead warning that trade policy continues to pose serious risks to price stability. His forecast sees core personal consumption expenditures (PCE) inflation topping 3% this year, with overall inflation not returning to the Fed’s 2% target until late 2027. Two more years of elevated prices, Barr argued, would be a tough pill for Americans to swallow after the past stretch of high inflation.
Other Fed officials — including Kansas City Fed President Jeffrey Schmid — have voiced similar hesitations about further cuts, fearing that easing too much could ignite renewed inflationary pressures. The uncertainty is compounded by the lack of reliable labor data during the ongoing federal government shutdown, making it hard to gauge just how much hiring demand has really cooled.
Barr concluded with a warning: the Fed must remain ready to act aggressively if the labor market’s softening turns into something more severe, especially if another economic shock hits. The challenge, he noted, is that there is no completely risk-free path forward — a sentiment echoing Powell’s own framing of the Fed’s current predicament.
So when the Fed meets later this month, it won’t just be deciding on a rate adjustment — it will be confronting the central question at the heart of its policy dilemma: Should it act to protect jobs now, or hold the line to tame inflation for the long run? Which do you think matters more right now?
