Fed Watchers Turn to Vote Counting as December Rate Drama Grows
Federal Reserve Chair Jerome Powell
(Bloomberg) — Division at the Federal Reserve has intensified in recent weeks, with officials staking out disparate positions ahead of the central bank’s December policy meeting — all while Chair Jerome Powell stays silent.
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The drama was amped up Friday when New York Fed President John Williams, sometimes seen as a proxy for the Fed chief, signaled his support for a rate cut after several other policymakers came out leaning against one.
Powell himself hasn’t spoken publicly since the central bank’s last rate decision on Oct. 29. But a tally of recent remarks suggests the other voting members of the rate-setting Federal Open Market Committee are now nearly evenly split over what to do, all but ensuring some will vote against the Dec. 10 decision regardless of the outcome.
Federal Reserve Chair Jerome Powell.Photographer: Al Drago/Bloomberg
Once a rarity under Powell, dissents have increased this year. As officials wrestled with competing objectives of supporting a flagging labor market and keeping inflation in check, there hasn’t been a unanimous vote since June. The government shutdown, which delayed several key economic data releases, further complicated their ability to agree on which goal to prioritize.
“By Powell not being out there right now, he’s letting every single member of the Open Market Committee have a voice and be listened to,” said Claudia Sahm, chief economist at New Century Advisors and a former Fed economist. “He’s giving them space to have this disagreement, and that’s actually a good thing because this is tough and you should have these debates.”
Scrambled Markets
The recent back-and-forth has scrambled market bets on the next rate move, as traders attuned to the Fed’s consensus view are now counting votes among individual policymakers.
Heading into the October policy meeting, investors saw a December rate cut as a sure thing. Odds plunged following the outburst of hawkish sentiment, briefly falling below 30%, according to pricing in federal funds futures. But they rebounded above 60% after Williams’ remarks on Friday.
The central bank has long prided itself on making rate decisions by consensus, and it’s been a hallmark of Powell’s tenure at the helm, which began in 2018 and is set to conclude in May.
The resulting low number of dissenting votes at the Fed’s eight annual policy meetings telegraphs confidence in their decisions, and some research suggests it ensures clear and effective communication of the committee’s intentions. But critics argue it also leads to “group-think” that suppresses potentially important arguments.
“On the group-think thing, people who are accusing us of this, get ready. You might see the least group-think you’ve seen from the FOMC in a long time,” Fed Governor Christopher Waller said Monday.
Waller dissented from the Fed’s decision to hold rates steady in July along with his colleague Michelle Bowman — the first time two Fed governors had voted against the chair in 32 years.
At the following meeting in mid-September, Governor Stephen Miran — who joined the Fed board that month after being nominated by President Donald Trump — voted against his colleagues’ decision to lower rates by a quarter point, instead favoring a bigger rate reduction.
At the Fed’s October 28-29 meeting, Miran dissented again for the same reason, while Kansas City Fed President Jeff Schmid dissented in the opposite direction. Schmid wanted to hold rates steady, arguing that further cuts could reignite inflation.
That’s a sentiment that’s been expressed by more and more Fed policymakers in the weeks since. Five of the 12 officials who vote on policy this year have indicated they’re leaning toward keeping rates on hold next month.
“We need to be careful and cautious now about monetary policy,” Fed Governor Michael Barr, who in the past has leaned toward providing support for the labor market, said this week.
Other past doves have also indicated they might be more comfortable holding rates steady next month. They include Chicago Fed President Austan Goolsbee, who hasn’t dissented in his nearly three years at the Fed, but said he would if he felt like he needed to.
“If I end up feeling strongly one way, and it’s different from what everybody else thinks, then that’s what it is. That’s fine. I think that’s healthy,” Goolsbee said Thursday in a call with reporters. “I don’t think there’s anything wrong with dissenting.”
He acknowledged there have been more dissents this year than in recent Fed history, but also called that healthy.
It’s not unprecedented in the longer arc of the central bank’s existence. Dissents abounded in the 1980s, when the Fed lifted rates to punishingly high levels in order to bring down high inflation, and in the 1990s when lingering anxiety about price pressures had many policymakers concerned about easing too much.
“Uncertainty is a pervasive feature of the macro economy and monetary policymaking,” Dallas Fed President Lorie Logan said Friday. “A policymaker cannot know with certitude the current state of every relevant aspect of the economy, let alone exactly how every part of the economy works or what shocks may arrive. Yet policymakers must still make policy decisions.”
The December decision is shaping up to be the closest call in years. Some, like Deutsche Bank Senior Economist Brett Ryan, believe Williams locked in a cut with his Friday remarks. Others aren’t so sure.
“I really think it’s still a coin flip,” said Sahm.
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