The road to interest rate cuts is “roadblocks”: hawks within the Federal Reserve are on the rise, and the 2026 road map is in a tug-of-war

The Zhitong Finance App learned that Federal Reserve officials put forward strongly antagonistic views on interest rate policy on Friday, including two officials who will receive voting rights in 2026. This dispute will continue to dominate the Bank of America into the new year.

The three policymakers focused on the risk of inflation in their speeches, but one of them hinted that he only advocated temporarily suspending interest rate cuts to confirm that inflation is easing. Two other officials put more emphasis on the risks facing the labor market.

These remarks are the first since Wednesday. At that time, the Federal Reserve cut the benchmark interest rate by 0.25 percentage points for the third time in a row to cope with rising unemployment. The negative vote against the decision shows that while inflation continues, this series of interest rate cuts has become increasingly controversial; however, predictions show that the median expectation of officials is that interest rates will be cut only once in 2026.

“Some members of the committee tend to be more cautious. They want to see more data on inflation and more data on the labor market,” said Marco Casiraghi, a senior economist at Evercore ISI. As the new chairman of the Federal Reserve is about to take office and is expected to drive interest rate cuts, “it will be a bit of a bargaining process as to how many interest rate cuts are reasonable in 2026.”

Two officials — Chicago Federal Reserve Chairman Austin Goulsby and Kansas City Federal Reserve Chairman Jeff Schmid — issued a statement on Friday explaining their reasons for opposing interest rate cuts on Wednesday. This is the first time since Goulsby joined the Federal Reserve in 2023, and Schmid previously voted against the last rate cut in October.

The head of the Chicago Federal Reserve said in a statement that considering some “worrying” inflation data before the government shutdown and the delay in the release of several key economic reports in October and November due to the shutdown, he “believes that the more prudent approach is to wait for more information before cutting interest rates again.”

Goulsby added later that morning that he expects to cut interest rates in 2026 more times than most other officials: “I am one of the most optimistic people about how much interest rates will drop in the next year.”

Schmid's statement was more clear. In his statement, he said, “Inflation is still too high, and the economy is showing continued momentum. Despite the cooling of the labor market, it remains generally balanced.” “I think the current monetary policy stance is only slightly restrictive at best.”

Rotation of voting rights

Chicago and Kansas City Federal Reserve Presidents will rotate the Federal Reserve's voting committee in 2026. Their two successors also spoke on Friday — one stressing concerns about inflation and the other warning of labor-market risks.

Cleveland Federal Reserve Chairman Beth Hammark said at an event in Cincinnati that the central bank should keep interest rates high enough to continue to put downward pressure on inflation.

“Currently, our policies are generally at a neutral level,” she said. I tend to take a slightly more restrictive stance.”

In the forecast released along with the interest rate decision on Wednesday, 6 of the 19 policymakers said they had hoped to keep the benchmark interest rate at the level before the rate cut ended 2025 this week.

Since only 12 officials each year have the right to vote in the Federal Open Market Committee, which sets interest rates, and only 2 of the 12 voting officials voted against this week (advocating maintaining higher interest rates), some analysts refer to large numbers of higher interest rate predictions as “silent objections.”

Philadelphia Federal Reserve Chairman Anna Paulson was one of the officials speaking on Friday. Both she and Hamack will rotate into the FOMC voting seats next year. She highlighted the ongoing risks in the labor market, despite recent efforts by the central bank to adjust interest rates to more neutral levels.

“Overall, I'm still more concerned about a weak labor market compared to the upward risk of inflation,” Paulson said at an event hosted by the Delaware Chamber of Commerce on Friday. This is partly because I think inflation is likely to fall next year.”

Meanwhile, San Francisco Federal Reserve Chairman Mary Daly posted that she supports this week's interest rate cuts on the grounds that a stronger labor market will help Americans make up for lost purchasing power through wage increases.

“The Federal Open Market Committee must continue to reduce inflation. Any goal higher than 2% is unacceptable. But how you reach your goals is important,” Daly said. She has no policy vote this year or next.” Keeping policies too tight may undue harm to American households and present them with two problems: higher-than-target inflation and a weak labor market.”