Ahead of the Federal Open Market Committee (FOMC) next month, which will set this year's final rate, divisions are deepening inside the U.S. Central Bank, the Federal Reserve (Fed). Commissioners' views are sharply split over whether to cut rates, increasing uncertainty about the rate outlook.
Minutes of the October meeting released by the Fed on the 19th said Commissioners showed "strongly differing views" on whether to cut rates in December. The Fed said that while "many participants" did not see a December cut as appropriate, "several participants" judged a cut was needed.
U.S. financial news outlet CNBC said, "In Fed terminology, 'many' means a larger number than 'several,' suggesting opposition to a December cut is dominant," but added, "Because 'participants' does not mean voters, the actual mood among the 12 voters remains opaque."
In October, the Fed cut the benchmark rate by 0.25 percentage point (p). At the time, 10 of the 12 who voted supported the cut, but the Fed said in the minutes that views still diverge widely on which risk is greater—labor market slack or entrenched inflation.
The Washington Post (WP) analyzed that the split stems from a clash between hawkish regional Fed presidents worried about inflation pressures and Fed governors in Washington who argue for additional cuts to prevent an economic slowdown. Cleveland Fed President Beth Hammack and others said inflation is above target and that it would have been better not to cut rates in October.
By contrast, some Fed governors close to the Donald Trump administration argue additional cuts are needed to support a weakening labor market. Stephen Miran, known as "Trump's economic consigliere," voted against the 0.25 percentage point cut after pushing for a larger cut at the October meeting, and Fed Governor Christopher Waller also stressed the need for a December cut, saying the labor market is "still weak and almost stagnant."
On top of that, President Trump's pressure for rate cuts is intensifying. At the "U.S.-Saudi Investment Forum" held at the Kennedy Center in Washington, D.C., he said Minister Besant had been dissuading him from firing Fed Chair Jerome Powell, and threatened to dismiss Minister Besant if Powell could not be persuaded. He also showed displeasure toward Powell, saying, "Frankly, I want to fire him."
As internal conflicts at the Fed grow, uncertainty across the economy is widening. Disagreement among Commissioners makes it harder for outsiders to read the Central Bank's intent, adding confusion to how investors and consumers form expectations. Auto and dwellings lending rates, which are sensitive to rate policy, are bound to become more volatile. John Hilsenrath, senior adviser at U.S. financial services firm StoneX Group, noted, "Uncertainty about the Fed's decision could intensify heading into the December meeting."
The 44-day federal government shutdown (work stoppage) is also weighing on decisions because key economic data needed for policymaking were not provided on time. During the shutdown, major indicators such as the labor market and inflation were not released. The Bureau of Labor Statistics (BLS) and the Bureau of Economic Analysis (BEA) disclosed some release schedules, but not all were made public, CNBC said. The Fed also said in the minutes, "After the shutdown, there were comments that a lack of government-provided expenditure data made it difficult to gauge the strength of recent economic activity."