The Fed's Divide: Will Core PCED Settle The Debate?

The FOMC is divided between a hawkish and an owlish camp. The hawks include Dallas Fed President Lorie Logan, Cleveland Fed President Beth Hammack, and Minneapolis Fed President Neel Kashkari, all of whom dissented at the July FOMC meeting in favor of a rate hike. Logan argues that policy is no longer restraining the economy. Hammack recently said that "now is the time to act" and that the latest inflation data are "not enough to convince me the tide has turned." Kashkari has warned that delaying action could eventually require more aggressive rate hikes.

The owlish camp includes the likes of New York Fed President John Williams and Richmond Fed President Tom Barkin. Barkin recently argued that much of today's inflation reflects tariffs, higher oil prices, and AI-related demand shocks. He believes that current interest rates may still be restrictive enough to bring inflation down. Williams's framework contends that core PCED inflation near 0.2% m/m would be consistent with continued disinflation over the rest of the year. Readings closer to 0.3% would suggest more persistent inflation and could warrant a policy response, in his view.