Fed Governor Michael Barr said in a speech overnight that monetary policy remains “modestly restrictive”, and supported the decision to lower the federal funds rate by 25 bps at the September meeting. He said the move brought the stance “a bit closer toward neutral,” but emphasized that further adjustments should depend on new data and the evolving balance of risks.

Barr noted that since the September meeting, consumer spending has surprised to the upside, with data showing activity on a “notably stronger trajectory” than previously thought. That, he said, prompted most observers to revise up forecasts for GDP growth through the remainder of the year. Inflation, meanwhile, “moved up as expected,” with core PCE remaining well above the 2% target.

The Fed governor cautioned that “considerable uncertainty” continues to cloud the outlook. Slower payroll growth could be a “harbinger of worse to come,” he said, though it might also stabilize given the low unemployment rate and solid growth backdrop. On inflation, he warned that tariffs could have only a modest effect on prices—or, conversely, trigger renewed price pressures if expectations begin to rise.

Barr concluded that the FOMC should remain “cautious” about adjusting policy until more evidence clarifies the direction of the economy. “If we see inflation moving further away from our target, it may be necessary to keep policy at least modestly restrictive for longer,” he said. “If we see heightened risks in the labor market, we may need to move more quickly to ease policy.”

Full speech of Fed’s Barr here.

New York Fed President John Williams said in an interview with The New York Times that he still expects interest rates to be lower by year-end, but emphasized that the pace and extent of easing will depend on incoming data.

When asked about the possibility of two additional 25bps reductions, Williams said that would depend on whether inflation and employment evolve broadly in line with his outlook. He expects inflation to “move up a bit to around near 3%” and unemployment to edge slightly higher, in which case “policy should evolve the way we expect.”

But he warned against complacency, noting that it would be “very damaging to the economy and the Fed’s credibility” if inflation were allowed to rise well above 2% without action.

Williams downplayed fears that President Donald Trump’s tariffs were fueling persistent inflation. He estimated the measures have lifted the price level by only 0.25 to 0.5 percentage point, adding that “underlying inflation seems to be moving gradually lower toward 2%.” He also said there were no signs of second-round effects, suggesting tariffs are having limited spillovers on broader price dynamics.

At the same time, Williams pointed to rising downside risks to employment, which he said were offsetting some of the upside risk to inflation.

Minutes from the Fed’s September 16–17 meeting, released overnight, show the Committee leaning toward additional rate cuts this year while emphasizing the need for caution in the pace of easing. “Most judged that it likely would be appropriate to ease policy further over the remainder of this year,” the minutes said.

But, officials also acknowledged a “range of views” about how restrictive policy currently is and how fast it should be relaxed. Some members cautioned that “financial conditions suggested monetary policy may not be particularly restrictive,” arguing for patience.

In a key passage, the Committee “stressed the importance of taking a balanced approach” to achieving its dual goals, mindful of “the extent of departures from those goals” and the “different time horizons” for inflation and employment to normalize.

Currently, Core PCE is at 2.9% and unemployment at 4.3%. The Summary of Economic Projections showed inflation to rise to 3.1% by year end, and then only decline gradually to 2.6% in 2026, and 2.1% in 2027. Unemployment is forecast to edge up modestly to 4.5% and then stabilizes.

That combination means the economy is at risk of policy over-restriction: keeping rates too high for too long could cause a sharper, sustained rise in unemployment. But — and this is the key point — the pace of that easing must be gradual as inflation would only slow over the next two years. That means the Fed can’t risk loosening so fast that it reignites price pressures or unanchors expectations.

At the meeting, Fed cut interest rates by 25bps to 4.00-4.25%, with Governor Stephen Miran as the only dissenter voting for a 50bps reduction.

Full FOMC minutes here.

Fed Governor Stephen Miran said overnight that the neutral rate of interest has likely declined relative to a year ago, making current policy settings “more restrictive than a couple quarters ago.”

Speaking at a conference, Miran warned that such “additional tightness” could pose risks ahead, as the lagged effects of monetary policy start to feed through the economy. While he remained upbeat about near-term conditions, he cautioned that if policy isn’t adjusted appropriately, “I do see some risks lurking there.”

He also highlighted the challenge of the ongoing U.S. government shutdown, which has deprived policymakers of critical economic data. Miran noted that private-sector indicators are not a “sufficient replacement” and expressed hope that the government will reopen before the October 28–29 FOMC meeting, allowing the Fed to make a data-informed decision.

Meanwhile, Minneapolis Fed President Neel Kashkari voiced concern that incoming data show stagflationary signals, with a slowing labor market and inflation still near 3%. He said the key uncertainty lies in whether tariff-induced price pressures will fade quickly or prove persistent, adding that it is “too soon to reach a firm conclusion.”

At an event overnight, Kansas City Fed President Jeff Schmid warned that price increases have become “more widespread”, with 80% of inflation categories rising, compared with 70% earlier this year. He called the trend “worrying,” indicating that underlying inflation pressures remain entrenched.

Schmid said he sees a “relatively muted effect” from tariffs on inflation, but viewed that as a signal that monetary policy is well positioned, not as evidence to justify “aggressively lowering” rates.

He added that the Fed faces difficult trade-offs between its dual mandates but insisted it “must maintain its credibility on inflation”.