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Dissenting Fed officials say US economy did not need rate cut

The two Federal Reserve officials who voted against the July 31 interest rate cut said they were unconvinced that risks to the U.S. outlook required a response from the central bank.

The Fed cut its benchmark federal funds rate for the first time since the financial crisis at its July meeting, with Kansas City Fed President Esther George and Boston Fed President Eric Rosengren casting dissenting votes. The two released statements on Aug. 2 explaining their opposition.

Fed Chairman Jerome Powell said most officials on the Federal Open Market Committee thought a rate cut was necessary to get inflation back up to its 2% target faster and to guard against mounting downside risks to the U.S. economy.

In a statement, Rosengren said he did not "see a clear and compelling case" for the Fed to cut rates given that the U.S. unemployment rate of 3.7% is near 50-year lows and that inflation is likely to pick back up in the coming months. He also said near-record highs in stock prices and corporate borrowing are two signs that financial stability risks are already "somewhat elevated."

George signaled she was open to a rate cut if she saw clear signs that the economy was experiencing substantial weakness. But she said the economy's more moderate growth in 2019 was already part of her expectation.

"There are certainly risks to the outlook as the economy faces the crosscurrents emanating from trade policy uncertainty and weaker global activity," she said in a statement. "Should incoming data point to a weakening economy, I would be prepared to adjust policy consistent with the Federal Reserve's mandates for maximum sustainable employment and stable prices."

The two regional Fed officials had each sent signals that they would oppose a rate cut ahead of the meeting. Rosengren told CNBC on July 19 that the U.S. economy is doing "quite well" and did not need an extra boost through lower rates, while George said in a July 17 speech that the Fed's benchmark rate appeared to be in a "good range."

Before the July meeting, there had been only one dissenting vote cast by the FOMC during Powell's tenure: St. Louis Fed President James Bullard voted against the Fed's June decision to keep rates unchanged, favoring a 25-basis-point rate cut instead. He did so again at the July meeting.