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federal Reserve Faces an unusually contentious meeting this week that will test the president jerome powellAbility to garner the necessary support from fellow policymakers for a third consecutive interest rate cut.
The Fed’s 19-member rate-setting committee is divided on whether to cut borrowing costs again. The fragmentation is further exacerbated by the complex nature of the economy: inflation remains high, which would typically lead the Fed to keep its key rate unchanged, while hiring is weak and the unemployment rate has risen, often leading to a rate cut.
Some economists expect three Fed officials to vote against the quarter-point cut that Powell could support at the December 9-10 meeting, which would be the largest dissenting vote in six years. Only 12 of the 19 members vote on rate decisions. Several non-voting officials have also said they oppose another rate cut.
“This is a really difficult time. Perfectly sensible people can arrive at different answers,” said William English, an economist at the Yale School of Management and former top Fed staff member. “And the committee likes to work by consensus, but this is a situation where consensus is hard to reach.”
The debate, which has also been heightened by the lack of official federal data on employment and inflation during the government shutdown, may be a preview of where the Fed is headed after Powell’s term as chairman ends in May. His successor will be appointed by the President donald trump and top White House economic adviser Kevin Hassett is widely expected to be. Hassett may push for faster cuts than other officials would be willing to support.
English said the potential for more disagreement could be seen as a sign of healthy debate between different views. The Fed’s tradition of reaching unanimous or near-unanimous decisions has often been criticized as evidence of “group think”. Yet some Fed officials warn that sharp divestiture also has downsides. If the committee’s vote ends up being 8-4 or even 7-5, financial markets could lose confidence in where the central bank is going next.
For example, Fed Governor Christopher Waller has said that in the case of a 7-5 vote, if just one official changed his or her mind, it could lead to a significant change in Fed policy.
However, right now most economists expect what is called a “sharp cut” – the Fed will lower rates, while also signaling that it may pause for a while to assess the health of the economy. (“Hawks” refers to officials who generally support higher rates to combat inflation, while “doves” often support lower rates to promote hiring).
Kansas City Federal Reserve Bank President Jeffrey Schmid is expected to dissent for the second consecutive meeting in favor of keeping rates unchanged. He may also be joined by St. Louis Fed President Alberto Musallem. Fed Governor Stephen Miron, who was hastily appointed to the Fed’s board by Trump in September, will likely dissent for the third consecutive meeting in favor of a major half-point cut in the Fed’s key rate.
After the Fed’s last meeting on October 28-29, many policymakers said they would prefer to keep rates unchanged at the December meeting, causing Wall Street investors to briefly lower the chances of a third rate cut to below 30%. but then john williamsThe New York Fed president said this year’s spike in inflation appears to be a temporary blip induced by Trump’s tariffs that will likely subside by mid-2026.
As a result, “I still see room for further adjustment” in the Fed’s short-term rates, Williams said. As chairman of the New York Fed and vice chairman of the rate-setting committee, Williams gets to vote on every interest rate decision and is close to Powell. Analysts said it was unlikely that Williams would have made such a statement without Powell’s support. Investors have increasingly picked up on the odds of a cut, now at 89%, according to CME FedWatch.
“You’re looking at chair power,” said Nathan Sheets, Citi’s chief global economist and former top Fed staffer. “Committee members, I have a natural desire, want to underline their support for Powell.”
Powell has been increasingly attacked by Trump, who just last month said he would “love to shoot his ass” and called Powell “this clown.”
The Fed is required by Congress to seek low inflation and maximum employment, two goals that are potentially in conflict.
At the moment, Powell and many other Fed officials are more concerned about hiring and unemployment than inflation. While the official government jobs report has been delayed, the unemployment rate reached 4.4% in September, the third consecutive increase and the highest in four years.
Meanwhile, payroll provider ADP reported that in November, its data showed that companies cut 32,000 jobs. And many large companies have announced widespread layoffs.
Concerns that the job market could deteriorate are a major reason why a rate cut is likely in December – but not necessarily beyond that. When Fed officials meet in late January, they will have up to three months of pending jobs and inflation data to consider. Those data could show that inflation remains persistently high or that hiring has increased again, which would suggest that further cuts are not needed.
“They may eventually agree to cut rates, but give some guidance … that indicates they are on pause for a while after that,” said Kathy Bostjancic, chief economist at Nationwide.