Data blackout contributes to murky Fed policy outlook
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Boston Federal Reserve president Susan Collins. Photo: Andrew Harrer/Bloomberg via Getty Images
It looks more and more like a coin flip as to whether the Federal Reserve will cut interest rates when policymakers meet next month, amid wide divides within the rate-setting committee.
Driving the news: Boston Fed president Susan Collins said Wednesday that she sees "several reasons to have a relatively high bar for additional easing in the near term."
- That implies that she would oppose cutting rates at the Dec. 9-10 meeting of the Federal Open Market Committee, where she has a vote this year.
State of play: It's the latest sign that the Fed is experiencing some of the deepest divides in years on what direction it should take. Trump-appointed governors have advocated for further rate cuts, but several of their colleagues have serious misgivings amid elevated inflation.
- The comments from Collins, a cerebral, low-key member of the policy committee — she has never dissented from an FOMC decision — show the depth of opposition to further rate cuts in the near term.
- Traders upped their odds that the Fed will stand pat next month. The odds of a December rate cut were at about 54% on Thursday, per the CME FedWatch tool — down from 63% on Wednesday and 96% a month ago.
Between the lines: Chair Jerome Powell faces a damned-if-you-do, damned-if-you-don't situation at a moment when there is not the regular flow of economic data that might resolve the tension one way or another.
- Leave rates unchanged, and there could potentially be three governor dissents (Michelle Bowman, Stephen Miran, and Christopher Waller), unprecedented in modern times.
- Cut rates, and there could also be significant dissent, including from Collins, Kansas City Fed president Jeffrey Schmid (who dissented from last month's rate cut), St. Louis Fed president Alberto Musalem, or others who have kept their cards closer to their vests.
The bottom line: At turning points in the economy, there is often a lot of disagreement about what to do. The absence of data makes this potential turning point even trickier.
