Christopher Phelan, chairman of the Council of Economic Advisers, warned against a Federal Reserve rate hike during the FOMC's policy meeting this week, citing declining inflation as the primary reason.
Speaking on CNBC's Closing Bell Overtime, Phelan pointed to lower inflation trends over the past three months as measured by the Consumer Price Index (CPI) and the Personal Consumption Expenditures (PCE) index. He argued that the Fed's decision to hold rates steady months earlier when inflation was higher made a current rate increase difficult to justify.
Inflation Data and Policy Rationale
Phelan stated: "No matter how you measure it, inflation is coming down. They didn't choose to raise rates 3 months ago when inflation was higher. It doesn't make sense to raise rates now in my view."
His position contrasts with remarks from Fed Chairman Kevin Warsh, who has indicated the cheap-money era is ending and signaled the Fed still has work to address inflation.
Market Implications
Traders have priced in rising odds of a rate hike this week, with some viewing it as a potential headwind for risk assets like Bitcoin. Higher interest rates typically pressure non-yielding assets by making bonds more attractive to investors.
Fed watchers expect the FOMC to remain closely divided. A similar split occurred at the committee's July meeting, when members voted nine-to-three to hold rates steady. The outcome of this week's vote will influence borrowing costs and risk appetite in financial markets.
