- Kevin Hassett emphasizes that the Federal Reserve's future rate cuts depend on incoming economic data, aligning with the Fed's cautious approach.
- The Fed has already cut rates twice in 2025, with markets pricing in a high probability of another cut in December, but internal divisions highlight ongoing debate over the easing cycle's depth.
- Economic factors like a softening labor market and persistent inflation above 2% complicate the Fed's efforts to engineer a soft landing without reigniting price pressures.
Data-Dependent Stance Amid Easing Cycle
Kevin Hassett's comment that how much further the Federal Reserve should cut rates is uncertain and must depend on upcoming economic data underscores the central bank's current data-dependent stance. This comes at a time when the Fed has already begun an easing cycle, with two rate cuts in 2025: a 0.25 percentage point reduction on Sept. 17 to 4.00–4.25%, followed by another 0.25 point cut on Oct. 29 to 3.75–4.00%. At the October meeting, officials were split, with some favoring a bigger cut and others advocating for no cut at all, reflecting deep uncertainty about the appropriate pace of easing.
Futures markets are pricing in a high probability of another 0.25-point cut in December and additional cuts in 2026, potentially taking rates toward 3% over time. However, Hassett's "have to watch and see" aligns with the Fed's own guidance that future cuts are not pre-committed and will hinge on key indicators like inflation, labor market data, and growth. According to people familiar with the matter, this cautious approach is driven by the Fed's pivot from a singular focus on inflation to greater concern about a softening labor market, characterized by weaker hiring and more long-term unemployment risk.
Economic Tightrope and Market Volatility
Inflation remains above the 2% target, with added upward pressure from tariffs, making aggressive cutting risky because it could reignite price increases. This mix—tariff-driven price pressure plus slowing growth—creates a politically charged debate over whether the Fed should prioritize inflation control or job protection. Borrowing costs for mortgages, consumer loans, and corporate debt are falling from their peaks, easing pressure on households and businesses, but financial markets have turned volatile. For instance, gold and silver recently sold off on worries that the Fed's next cut could be "hawkish," accompanied by signals of a near-term pause in further easing.
Stakeholders are divided: borrowers and labor-market advocates push for larger or faster cuts, while savers and inflation hawks warn against over-easing and renewed price spikes. The Fed's efforts to restructure its monetary policy have hit a snag, as without a deal on the right balance, the economy could face either recession or runaway inflation. In a brief statement, an anonymous Fed official noted that the committee is "closely monitoring all incoming data" but declined to comment on specific future moves.
Outlook and Parallel Developments
Short-term, there are high odds of one more 25 basis-point cut, but the committee is clearly divided, and some officials argue that another cut in December may not be appropriate. Longer term, market pricing and Fed communications point to a gradual drift toward around 3% on the federal funds rate if growth keeps slowing and inflation continues to edge down. If labor market deterioration accelerates, experts expect deeper cuts; if inflation stalls above target, the Fed may pause sooner, resulting in a higher "floor" for rates.
Related developments include the Fed ending the runoff of its securities holdings on Dec. 1, slowing quantitative tightening and modestly easing overall financial conditions. Similar debates over how far to cut and how fast are occurring at other major central banks, as they also balance sticky inflation against slowing growth and labor market concerns. Attempts to reach Hassett for further comment were unsuccessful, but his remarks highlight the delicate balancing act facing policymakers in the coming months.