The funniest possible outcome of the December Fed meeting
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Fed governors Christopher Waller, Philip Jefferson, Jerome Powell, Michelle Bowman and Lisa Cook. Photo: Al Drago/Bloomberg via Getty Images
The Federal Reserve is deeply divided right now between officials who think it should cut interest rates next month and those who don't. One plausible result of the vote would create a stunning irony.
The big picture: Usually, as a Fed watcher, you don't spend much effort counting votes. The policy committee reaches a consensus decision, and if there is a dissent or two, that is a footnote at best.
- These are not normal times. The details of the vote count matter in light of policy divides.
- Consider one particularly wild — but fully plausible — way the votes could shake out.
State of play: If the leadership triumvirate of chair Jerome Powell, vice-chair Philip Jefferson, and New York Fed President John Williams decide a rate cut is in order, they will surely be joined by the three Trump-appointed governors on the committee (Michelle Bowman, Stephen Miran, and Christopher Waller).
- But that only gets them to six votes of the 12 voting members of the FOMC. They need a seventh for a majority.
- Where, oh where, will the seventh vote come from?
Zoom in: All four presidents of non-New York reserve banks who have a vote at this meeting (Chicago's Austan Goolsbee, Boston's Susan Collins, St. Louis' Alberto Musalem and Kansas City's Jeff Schmid) have expressed reservations about a rate cut.
- That's no guarantee they'll all dissent, of course (Goolsbee was noncommittal Thursday, saying "I want to hear what my colleagues have to say"). But it is a live possibility.
- In that scenario, there are two Biden-appointed governors Powell could turn to to get his majority.
- One of those is Michael Barr, who seems awfully worried about inflation right now and argues for caution. The longstanding norm that governors don't dissent has been blown to smithereens in the last 14 months. So he could plausibly be a "no" vote.
Between the lines: That leaves one other Biden-appointed governor Powell could turn to for his seventh vote. It's an official who is highly focused on the health of the labor market and has kept her views on the next policy move close to her vest.
- That governor, of course, is Lisa Cook.
- The Supreme Court is scheduled to hear the case over whether President Trump can fire her, as he has been attempting since the fall, on Jan. 21.
