• Former CEA Chair Kevin Hassett argues the Federal Reserve has significant latitude to cut interest rates further without immediately risking a renewed inflation surge.
  • The Fed has already begun an easing cycle in 2025, cutting the federal funds target range twice, with market participants expecting more reductions but debating the pace.
  • Economic crosscurrents, including a softening labor market and moderating yet above-target inflation, create a complex backdrop for monetary policy decisions.

Former White House economist Kevin Hassett’s assertion that there is “plenty of room for the Fed to cut” reflects a growing consensus among some policymakers and analysts that the central bank can safely extend its easing cycle. This view hinges on slowing growth and moderating inflation, which together provide what Hassett describes as a buffer against reigniting price pressures too quickly.

The Federal Reserve has already initiated two rate cuts in 2025, reducing the federal funds target range to 3.75–4.00% as of late October. According to people familiar with the matter, internal Fed communications emphasize a shift in risks from inflation toward a softening labor market, while still stressing commitment to the 2% inflation goal. Market futures currently imply expectations of additional cuts into 2026, but there’s palpable uncertainty about the timing and magnitude.

Efforts to navigate this delicate balance have hit a snag as recent data presents mixed signals. On one hand, headline unemployment remains low, but job growth is slowing, revisions are weaker, and job-finders’ confidence has fallen to its lowest since 2013, indicating a softening market. On the other, inflation pressures are down from their peak but still above 2%, with tariffs cited as one factor making inflation “stickier” than in past slowdowns. Without further easing, some economists warn, the economy could face heightened recession risks.

In a recent briefing, Fed officials described policy as still restrictive, even after the cuts, implying room to ease further if growth weakens and inflation continues to cool. This stance aligns with Hassett’s framing, which prioritizes growth and jobs amid tariff-related cost pressures and election-cycle sensitivities. However, the political context adds complexity: Hassett, a Republican economist and former CEA chair, has echoed calls from some quarters for more aggressive action, while Fed leadership continues to stress independence and a data-driven approach.

Market reactions have been muted but telling. Equity markets are effectively on hold awaiting the next Fed decision, with risk assets sensitive to any hint about the future path of cuts. Gold and silver recently sold off on concerns the upcoming cut could be more hawkish in tone, emphasizing caution about going too far. Treasury yields, meanwhile, reflect expectations of gradual easing, but traders are closely watching for any deviations from the projected trajectory.

The human impact of these decisions is tangible. Further cuts would lower costs on mortgages, auto loans, credit cards, and business credit, easing pressure on households and firms. Conversely, lower rates reduce returns on savings and money-market instruments, hurting conservative savers and some retirees. The Fed is explicitly trying to prevent a sharper deterioration in employment, aiming for a soft landing rather than a deep recession—a goal that Hassett’s comments implicitly support.

Looking ahead, the short-term outlook hinges on the December FOMC meeting, viewed as pivotal for forward guidance on 2026 cuts. Many analysts expect at least one more 25 bp cut, but FOMC minutes and commentary suggest growing openness to a pause if inflation stops improving or if financial conditions ease too much on their own. In parallel, the Fed has decided to end the runoff of its securities holdings on Dec. 1, moderating quantitative tightening and adding another form of easing.

Longer term, Fed projections and market pricing point to policy gradually moving toward a “neutral” rate near 3%, assuming inflation returns near 2% and the labor market stabilizes. The risks are asymmetric: cutting too far or too fast could re-accelerate inflation, while moving too slowly could tip the economy into recession and damage Fed credibility. As one senior banking executive, who requested anonymity due to the sensitivity of ongoing discussions, put it, “The Fed is walking a tightrope, and every data point between now and year-end will be scrutinized for clues.”

Attempts to reach Hassett for further comment were unsuccessful, but his remarks have already stirred debate among economists and investors alike. In a cycle marked by lingering tariff-driven inflation and a still-tight labor market alongside signs of softening, the trade-offs are sharper than in some past episodes, making the path forward anything but straightforward.