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Fed Rate-Cut Dissenters Cite Strong Employment, Financial Risks

Steve Matthews

(Bloomberg) -- Two Federal Reserve regional bank presidents said they dissented against cutting interest rates this week because U.S. economic data remain solid and risks from a global slowdown and trade tensions hadn’t yet altered that outlook.

Federal Reserve Bank of Boston President Eric Rosengren said Friday the case for cutting interest rates had not been “compelling” at the July 30-31 meeting. Kansas City Fed chief Esther George said no change was needed “with moderate growth, record low unemployment, and a benign inflation outlook,” though she acknowledged risks from trade uncertainty.

“Should incoming data point to a weakening economy, I would be prepared to adjust policy,” she said in a statement.

Rosengren didn’t mention the trade tensions in his statement issued earlier on Friday that also highlighted financial stability concerns “given near-record equity prices and corporate leverage.”

Investors expect another quarter-point cut in September after President Donald Trump on Thursday escalated his trade war with China and Beijing vowed to retaliate.

Rosengren and George’s votes in favor of keeping rates on hold dealt Chairman Jerome Powell his the first double dissent since he took the Fed’s helm in February 2018.

Briefing reporters after the decision on Wednesday, Powell said the cut represented insurance against downside risks from a global economic slowdown that would bring about a faster return of inflation to the central bank’s 2% target.

Both George and Rosengren are former bank regulators who have been worried about asset price bubbles, which led to the past two U.S. recessions. Rosengren’s statement included charts showing stock prices and corporate leverage near all-time highs.

Powell on Wednesday played down financial stability concerns, saying that while he took them seriously, “as I look at today’s situation, I don’t see them as a reason not to take this action today.”

To contact the reporter on this story: Steve Matthews in Atlanta at smatthews@bloomberg.net

To contact the editors responsible for this story: Alister Bull at abull7@bloomberg.net, Scott Lanman

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