The Lagging Federal Reserve Policy

Cogport has supported Interest Rate cuts since August last year.

The Federal Reserve board has not accommodated the needs of the Economy.

We have been a critic of Fed Chairman Powell’s performance in several previous posts. 

You can see them on the Cogport blog list – worth reading for background.

On July 30, the Fed declined again to lower rates.

On August 1, the U.S. Labor Report was well below economic forecasts.  More about that later in this post.

Cogport has questioned the independence of members of the Federal Reserve Committee.  Their past record appears to be a case of “Groupthink” focused on outdated theory and not actual data.  This would be influenced by the Power of the Fed Chairman Powell.

However, last week’s vote shows some cracks in the dam.

The Voting Committee is composed of 12 Members:

FOMC Voting Members:

1. 7 members of the Board of Governors (including the Chair and Vice Chair)

2. 1 Federal Reserve Bank President of the New York Fed (permanent voter)

3. 4 of the remaining 11 Reserve Bank Presidents, who rotate as voting members on a yearly basis

In the last vote, two members of the Board dissented.  That is highly unusual – it is almost always a unanimous vote.

One Board member was Absent – turns out to be Significant.

Yesterday, the Absent Board Member, Adriana Kugler, resigned without explanation.

In her resignation letter, Kugler emphasized her commitment to public service and a data‑driven approach focused on inflation and labor markets

This is a telling statement.  The Fed has always emphasized the use of Actual Data to accomplish its Dual Mandate:

1.    Control Inflation

2.    Promote Full Labor Employment  (Economic Growth).

That is one of Cogport’s main points: Powell and the Board have not followed the actual data.  They have made major policy mistakes over the last 6 Years.  (See the previous Cogport posts).

The Friday Labor Report was quite disturbing:

• July payrolls increased by 73,000 jobs, significantly below forecasts around 110,000–106,000, and one of the lowest monthly gains in nearly five years

• May and June figures were revised downward by a combined 258,000 jobs, with June cut from 147,000 to just 14,000, and May cut from 144,000 to 19,000.

• The unemployment rate rose to 4.2%, up slightly from 4.1%, and labor force participation edged down to 62.2%

The Fed mistakes are obvious to many Economists who have spoken out publicly, including Austan Goolsbee (President of Chicago Reserve Bank) who has said the Fed policy is Over Restrictive. (He also served as Chairman of the Council of Economic Advisers under President Obama).   He is not currently on the Voting Committee of the Fed under their rotating system.

The Effect of high interest rates is especially hard on Small Business, Consumers and Housing Affordability.

Under pressure, Powell now has some Hobson’s choices:

• Resign and stain his legacy

• Bend his methods to respond to actual data, not his future beliefs.

• Continue on his current policy, weaken the economy, and history will have a record of his legacy as poor performance.

Below is a Chart showing the Rationale for Fed Action to reduce rates.

SUMMARY

The current performance of the Federal Reserve Board has exposed flaws in the System that need Reform.

Cogport has previously made some reform proposals.  After recent experience we will have a more comprehensive Reform Proposal soon.

David Hollaender                                   August 2, 2025

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