Powell comments about future rate cuts reflect growing division within the Fed
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Federal Reserve chair Jerome Powell. Photo illustration: Aïda Amer/Axios. Photo: Drew Angerer/Getty Images
The big surprise from Wednesday's Federal Reserve policy meeting was chair Jerome Powell's repeated efforts to throw cold water on expectations that another rate cut is a sure thing by year-end — a reflection of an increasingly vocal, and frustrated, contingent of monetary hawks.
Why it matters: So much attention has been paid to the push to lower rates, advanced by President Trump appointees and eventually embraced by Powell himself, that it's easy to overlook how deeply worried a contingent of policymakers remain about still-elevated inflation.
- Powell acknowledged "strongly differing views" on the committee about a December rate cut and stressed that another move by year-end is "not a forgone conclusion — far from it."
Between the lines: It sure sounds as if this was the most heated closed-door policy debate in quite some time — though the signs that there's deeper division within the central bank have been evident for a while, if you know where to look.
- It's hard to recall such an explicit effort by the Fed chair to correct market pricing – all but telling traders that they had become overly confident about another rate cut on the way.
- And it implies that, unless economic data breaks to more clearly indicate whether the job market or inflation is the bigger problem, Powell and his successor will face internal resistance to bringing rates down much further.
By the numbers: Markets had all but fully priced in a December rate cut, with 88% odds heading into the meeting, per the CME FedWatch tool.
- Powell's jawboning achieved its goal, and moves in futures markets since the press conference have brought those odds down to 71%.
Reality check: The consensus around three rate cuts has always been more fragile than some of the analyst notes (and futures market pricing) would suggest.
- In projections released in September, it is true, as was widely reported, that the median Fed policymaker saw three more interest rate cuts in 2025.
- But that was by a hair's breadth, with 10 of 19 seeing three or more rate cuts. The other nine saw fewer as likely to be justified.
- Reserve bank presidents including Beth Hammack (Cleveland), Jeffrey Schmid (Kansas City), Alberto Musalem (St. Louis) and Lorie Logan (Dallas) have, in recent speeches, emphasized inflationary risk when prices have been rising at nearly a 3% rate even before tariffs' effects take hold.
Yes, but: The reserve banks rotate voting slots, so in pure vote-counting terms, the bloc of hawks punches below its weight on the committee. This year, only Schmid and Musalem out of the four have votes.
Of note: Reflecting the scale of the committee's divide, Schmid dissented, preferring to leave rates unchanged. Governor Stephen Miran dissented, favoring a more aggressive rate cut.
- There have been only three occasions this century in which there were Fed dissents in opposite directions at the same meeting, most recently in 2019.
