On Wednesday, several Federal Reserve officials, in response to inquiries regarding the U.S. Department of Justice issuing a subpoena to the Federal Reserve over a costly building renovation project, and Fed Chair Powell's testimony about the project before Congress last year, all emphasized the importance of central bank independence.
Among them, Minneapolis Fed President Neel Kashkari became the first policymaker to explicitly support Powell's counterargument. Powell stated that the DOJ's investigation was a pretext to exert pressure on interest rates. 'The escalation over the past year is essentially about monetary policy,' Kashkari said in an interview with (The New York Times).
At an event hosted by the Wisconsin Bankers Association, Kashkari suggested that even if Trump replaces Powell after his term ends in May, the Fed's independence in monetary policy will continue to be protected. "The successor only has one vote; ultimately, the best argument wins," he said. "I am confident that the committee will continue to make the best decisions based on data and analysis."
Chicago Fed President Goolsbee and Atlanta Fed President Bostic also praised the importance of the Fed's ability to set interest rates without political interference, with New York Fed President Williams expressing similar views on Monday. "The independence of the Fed is crucial for the long-term inflation rate in the U.S.," Goolsbee said in an interview with NPR on Wednesday.
Fed Governor Milan took a different approach. When asked about the Justice Department's investigation and whether it might undermine confidence in the Fed's commitment to curbing inflation, he said, "I don't really agree with that. I think inflation is heading in the right direction." He said at an event in Athens, "Inflation is on the right track and is coming down. The mechanisms of all the components are in the right place. And all these other things are just noise."
Milan also expressed disagreement with a statement issued by a group of global central bank governors, which expressed 'full support' for Powell in the face of the investigation. He said, "I think it's inappropriate for central bank governors to intervene in their countries' non-monetary policy issues, and even more inappropriate to intervene in the affairs of other countries."
Economic Outlook
Aside from Milan, the other policymakers in the group hinted that they are unlikely to support another rate cut when officials meet later this month. Kashkari was again the most outspoken.
In an interview with The New York Times, he stated that interest rates should remain unchanged at the Fed's meeting on January 27-28. Kashkari has voting rights on rates this year, and he cited the economy's resilience and concerns about inflation still being high as reasons not to cut rates further at this time. He added that there might be reasons for a rate cut later this year.
Fed officials lowered interest rates at the last three meetings in 2025, but as the year-end approaches, divisions over whether to continue cutting rates are growing. Most market participants expect no further rate cuts until June.
Kashkari's view largely aligns with the comments from Philadelphia Fed President Harker. Harker expressed that she is "cautiously optimistic" that inflation will return close to the Fed's 2% target by the end of 2026.
"I see inflation moderating, the labor market stabilizing, and economic growth at around 2% this year. If all of these come to pass, then a modest further adjustment to the federal funds rate later this year may be appropriate," she told the Greater Philadelphia Chamber of Commerce.
Bostic stated in another speech in Atlanta that interest rates should remain at a level that restricts economic activity, as policymakers still have more work to do in curbing inflation. "We haven’t hit our inflation target in many years. We are still quite far from where we need to be," Bostic said.
Since the FOMC's December meeting, several officials have expressed a preference for maintaining stable rates for a period to better interpret the economic outlook, in addition to the three officials mentioned above.
Milan continues to call for aggressive rate cuts, as he has since his appointment last September. He has urged the Fed to lower its benchmark rate by 1.5 percentage points this year. On Wednesday, he argued that the government's deregulation agenda could boost economic growth without bringing additional price pressure, providing another reason for rate cuts.$BTC
