Why affordability matters for the Fed in rate cut decision
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Illustration: Annelise Capossela/Axios
The word of the year for political pollsters and analysts is "affordability." It's also on the minds of senior Federal Reserve officials as they think about the next rate cut.
Why it matters: The large split among Fed officials comes down to those who continue to see inflation as a more pressing risk — an issue vexing consumers — versus those who want to take another step to shield the weakening labor market.
What they're saying: "Part of why I continue to be hesitant about further easing ... is recognizing the concerns about the cost of living," Bank of Boston president Susan Collins said in a response to a question from Axios on Saturday.
- Collins, who spoke to reporters on the sidelines of a conference hosted at the Boston Fed, said high price levels are a consistent topic when she meets with contacts around her district.
- "I certainly hear in every conversation I have the continued concerns and the challenges of high price levels," especially among low- and moderate-income households, Collins said.
- Additional inflation on top of that is "extremely challenging," Collins said. "That is one of the reasons why I highlight the risks related to bringing inflation down in a reasonable amount of time."
Between the lines: Collins, a voting member of the Fed's interest rate-setting committee, is among the unusually large constituency pushing back against a third consecutive rate cut in December — though the official stressed she had not "made a decision" yet.
- Key to the argument is the concern that the Fed still needs monetary policy at least somewhat tight to keep inflation in check.
Collins cited relatively robust economic demand that could push firms to pass a larger share of tariff-related costs onto consumers.
- Financial conditions — including the booming stock market — are also a "headwind," Collins added. "That set of considerations does make me hesitant," she said.
The big picture: Economic sentiment remains near rock-bottom levels, with consumers still "frustrated about the persistence of high prices and weakening incomes," Joanne Hsu, director of the University of Michigan's consumer survey, said in a statement last week.
- Even though consumer inflation expectations have come down, survey respondents "continue to report that their personal finances now are weighed down by the present state of high prices," Hsu said.
- That dissatisfaction is apparent in new polling numbers that show plummeting approval for President Trump's economic policies.
- Roughly one-third of voters in mid-November said they approved of Trump's handling of the economy, the worst reading of his second term and well below the 52% who said the same in March, according to a poll from CBS News.
The bottom line: Consumers' frustrations with high prices and the stagnant labor market mirror the huge division at the Fed, where officials are split over whether to prioritize still-high inflation or weak hiring.
