A 40-year era just ended: The Fed is no longer following its chair
The Federal Reserve appears to be shifting away from decades of near-unanimous votes and deference to the chair, a change that has introduced short-term uncertainty around interest-rate policy but could ultimately lead to a healthier, more independent central bank.
Jim Bianco of Bianco Research noted the increasingly fragmented views inside the Federal Open Market Committee (FOMC). After back-to-back rate cuts in September and October, policymakers remain divided on what should come next.
According to Bianco, four FOMC members are pushing for another rate cut, five prefer to hold rates steady, and three, including Chair Jerome Powell, have not clearly indicated their position.
Bianco attributes part of this shift to President Trump’s “consistent bashing” of the Fed and its chair, arguing that the criticism has disrupted the central bank’s long-standing culture of consensus and opened space for more dissent.
“This is how every other major central bank and the Supreme Court operate,” Bianco wrote. “If this is truly happening, it marks the end of the Fed’s unanimous voting.”
“The irony is that, by attempting to stack the odds in his favor by appointing his people, Trump may have made the Fed more independent,” he added.
The apparent fracture at the Fed has also unsettled markets, with the odds of a December rate cut falling from near certainty to below 50%, according to CME Group’s FedWatch tool.
A lack of data
Adding to the uncertainty surrounding the Fed’s next move was a temporary blackout of key economic reports, ranging from employment to inflation, caused by the recent U.S. government shutdown.
With policymakers deprived of fresh data, assessing the economy’s strength has become more challenging.
Boston Fed President Susan Collins said the lack of timely information has made “formulating an economic outlook [...] challenging.” In a recent speech, she also noted that the bar remains high for additional rate cuts in the near term.
Perhaps ironically, the next Bureau of Labor Statistics Consumer Price Index (CPI) report is scheduled for Dec. 10, the same day the FOMC is set to conclude its final policy meeting of the year.
Meanwhile, the White House announced that the October CPI and non-farm payrolls reports will likely never be released, blaming the prolonged government shutdown for wiping out critical data collection.
Press Secretary Karoline Leavitt accused congressional Democrats of permanently damaging the federal statistical system, a development she said is “leaving our policymakers at the Fed flying blind at a critical period.”
The most recent CPI report, covering September, showed inflation re-accelerating at the end of the third quarter, with headline prices rising at a 3% annual rate, still above the Fed’s 2% target. Core inflation, which excludes food and energy, also stood at 3% annually.