The Fed subtly signaled that only rate cuts are on the table. Some Fed officials are crying foul

By Bryan Mena, CNN

Washington (CNN) — One word in the Federal Reserve’s lengthy policy statement released this week is causing consternation among its officials, some of whom are warning that it could end up costing the US economy.

That word is “additional.”

Since the early 2000s, the Fed has signaled if interest rates could increase, decrease or remain unchanged — known as “forward guidance” — through officials’ public remarks and policy statements after every meeting.

On Wednesday, its latest forward guidance hinted that lower interest rates might be the only possibility moving forward, noting it will consider “additional adjustments to the target range for the federal funds rate.” In its latest move, the Fed this week kept its key interest rate unchanged for the third consecutive meeting.

The word “additional” specifically drew objections. Fed presidents Lorie Logan of Dallas, Beth Hammack of Cleveland and Neel Kashkari of Minneapolis “did not support inclusion of an easing bias in the statement at this time,” according to the Fed on Wednesday, so all three of them cast dissents. The three Fed presidents released statements Friday detailing why that was a mistake.

Since 2024, the only adjustments the Fed has made to the target range have been down, largely driven by signs of a weakening economy. But the economic situation has dramatically changed this year: The US-Israeli war with Iran, which began on February 28, has kept global oil prices hovering around $100 a gallon for weeks and has kept US gas prices elevated.

There can be serious economic consequences if the Fed misreads the economy — even communicating the wrong direction for interest rates can be risky, the Fed officials said.

The Fed’s forward guidance “influences financial conditions and the economy,” Logan said in a statement Friday, “and it affects the achievement of the (Fed’s) maximum employment and price stability goals.” Kashkari echoed that in a separate statement Friday.

Officials follow their forward guidance to help keep markets stable, make monetary policy more effective and influence financial conditions.

Fed watchers interpreted the use of “additional” in the policy statement as evidence of “easing bias,” or that officials are leaning toward lowering rates in the near term, while signaling that rate hikes are not likely. It was a rare type of dissent over language, not the level of interest rates, in a policy statement.

Kevin Warsh, President Donald Trump’s pick to lead the Fed, is on track to take the reins in just a few weeks, and Warsh may push for lower rates, since he was nominated by a president who has long pounded the table for rate cuts. That’s also drumming up the perception that the Fed is leaning toward lowering rates, which the three Fed presidents who dissented are firmly against.

Their dissents, plus Miran’s separate one in favor of lowering rates this week, resulted in four dissents, the most since October 1992.

Hammack’s statement explained that “this clear easing bias” is “no longer appropriate given the outlook” because not only is the Iran war stoking inflation pressures, but the US labor market seems to have stabilized, meaning there’s no urgency to deliver rate cuts to stimulate the economy.

Warsh himself has said he isn’t a fan of forward guidance.

“Unlike many of my colleagues, past and present, I don’t believe in forward guidance,” he said during his confirmation hearing last week. “I don’t believe that I should be previewing for you what a future decision might be. I think it’s essential that the Fed make decisions in the room.”

Warsh did not signal during his confirmation hearing where interest rates should be headed.

Still, the batch of dissents this week shows Warsh will likely have a hard time convincing his colleagues to lower rates if he’s confirmed.

“Kevin Warsh will take over as chair by the Fed’s next meeting in mid-June, but the rest of the Fed’s leadership are maintaining a high bar for a rate cut,” said Bill Adams, chief US economist at Fifth Third Commercial Bank, in an analyst note this week.

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