WASHINGTON, Dec 1 (Reuters) – The Federal Reserve, sometimes criticized for being too consensus-oriented, could have a series of divisive decisions on interest rates, which could weaken its policy message and intensify doubts about its independence from political influence.
A division has recently emerged among Fed members as inflation progress has stalled while job creation has lost steam, putting the US central bank’s 2% inflation and maximum employment goals in direct conflict.
The recent government shutdown has further complicated matters by delaying data that could clarify the direction of the economy, leaving policymakers ahead of the December 9-10 meeting with largely fixed and deeply divided positions on whether further rate cuts are necessary to help the labor market or whether they are too risky given the still-high level of inflation.
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It seems likely that this month’s meeting will produce several dissents, regardless of the outcome. As many as five of the 12 voting policymakers on the Federal Open Market Committee (FOMC), which sets the central bank’s rates, have expressed opposition or skepticism about further rate cuts, while a core of three directors want rates to fall.
“You may see the least ‘groupthink’ you’ve seen… in a long time,” Fed Governor Christopher Waller said last month, amid speculation that the December meeting could produce three or more dissents if the Fed approved another quarter-point cut, as expected by financial markets. The FOMC has not had three or more dissents at a meeting since 2019, and this has happened only nine times since 1990.
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Fed Chair Jerome Powell did not direct expectations about the December meeting one way or another. However, comments from New York Fed President John Williams, FOMC vice-president and permanent voting member of the committee, leaned towards a cut when he said late last month that there was room to reduce borrowing costs ‘in the near term’.
