Former New York Fed President William Dudley said Thursday that the Federal Reserve's aggressive interest rate cuts are due to its greater concerns about the labor market than Chairman Jerome Powell has let on.

“I think in this situation they see the risks to the labor market as being greater than the risks to inflation,” Dudley said at a discussion on the Fed’s actions sponsored by OMFIF, an independent central bank forum in London.

"I thought Powell did a great job explaining it yesterday in a non-intimidating way," Dudley said.

The Fed decided to cut its policy rate by 50 basis points to a range of 4.75% to 5%, rather than the more gradual 25 basis point adjustment many economists had expected. Before the meeting, Dudley had argued that the Fed should cut rates by 50 basis points.

Powell said at a news conference that he was not worried about an economic collapse. He said, "I don't see anything right now that would suggest that the odds of a recession are elevated."

Powell stressed that the Fed believes that the risks of a deteriorating labor market and rising inflation are balanced. He also said that the Fed is not pursuing a weak economy. He said, "You can think of this (a 50 basis point rate cut) as a signal of our commitment not to fall behind."

Dudley said the risk balance chart included in the Fed's economic projections made it clear that "the committee is now much more concerned about labor market risks than it is about inflation surprises."

Dudley said during the OMFIF discussion that he believes Powell wants to cut rates by 50 basis points and convince the committee to support his view. He noted that the Fed's dot plot shows that nine Fed officials predict only one 25 basis point cut this year, while 10 officials expect two adjustments, a slight majority.

He said that suggested Fed officials likely began the meeting expecting 25 basis point adjustments in the three remaining meetings of the year, with yesterday's rate cut consuming two of those moves.

Fed Governor Bowman was the lone dissenter at the meeting. She was the first of seven Fed governors to dissent since 2005.

Asked if Powell could run into "bond market problems" later this year or next because the market is expecting more rate cuts than he can deliver and he's now "dragging the committee," Dudley said that's certainly a possibility. "The market is very aggressive in the short term," Dudley said, adding that he expects the Fed to cut rates by 50 basis points and 25 basis points once more this year. That's more than the 50 basis points of rate cuts the Fed has projected this year.

But Dudley said that, ultimately, he's not too worried about the issue. "The Fed will do what it does, and the market will be forced to adjust."

Article forwarded from: Jinshi Data