"New Federal Reserve News Agency": Regardless of whether there is a rate cut or not, the Federal Reserve's December meeting may have at least 3 dissenting votes

Renowned financial journalist Nick Timiraos, known as the "New Federal Reserve Correspondent," wrote that Federal Reserve officials are facing a challenge—how to bridge the internal divisions on the interest rate path in the absence of new economic data to reference and make difficult judgments.

Timiraos pointed out that the speech by Federal Reserve Vice Chairman Philip Jefferson on Monday is a microcosm of this dilemma:

He acknowledged the simultaneous existence of persistent inflation and the risk of weakening employment—these two major threats point to completely opposite policy prescriptions. Jefferson stated, "The changing balance of risks highlights the need for caution and gradualism in rate cuts."

Aside from this, his speech did not provide any clear justification for either "holding steady for a long time" or "continuing to cut rates next month," both of which are now fiercely debated.

Timiraos noted that as a member of the Federal Reserve leadership, Jefferson typically supports Chairman Jerome Powell's stance, and Powell will be a key figure in coordinating the highly divided policy committee next month.

Market expectations for a rate cut at the Federal Reserve's meeting on December 9-10 have been declining in recent weeks—this is an extremely rare phenomenon during a period without any major economic data releases. According to CME data, the market-implied probability of a rate cut is currently about 45%, down from 60% a week ago, and far below the 90% seen during the October meeting.

Jefferson reiterated on Monday that he believes interest rates remain at a "slightly restrictive" level, which will constrain U.S. economic growth—but recent rate cuts have brought rates closer to the "neutral" range that neither stimulates nor suppresses economic activity.

Timiraos stated that the Federal Reserve cut rates in September and October, but the data blackout caused by the government shutdown has made it difficult to resolve the increasingly sharp divisions among policymakers. Several officials who previously supported rate cuts indicated last week that they would oppose further cuts unless they see a deterioration in employment or an improvement in inflation. It remains unclear whether this data will be available before the next meeting.

Timiraos outlined the factions within the Federal Reserve opposing and supporting a rate cut in December:

• One faction of officials is more concerned about inflation risks. U.S. inflation has been above the Federal Reserve's 2% target for four consecutive years. They worry that new price pressures from tariffs will keep inflation above target for the next two years and feel uneasy about continuing to ease financial conditions in this context. This faction has recently expanded to include four regional Federal Reserve presidents with voting rights this year, as well as Federal Reserve Governor Michael Barr.
• Another faction of officials—including all three Federal Reserve governors appointed by Trump— is more focused on the labor market. They are concerned that their colleagues are overemphasizing the risk of high inflation, which could lead to a completely avoidable recession, while they believe the risk of persistently high inflation is actually quite low.

Timiraos quoted Waller's remarks on Monday:

Companies have been hiring slowly and laying off cautiously over the past year, but Waller expressed concern that an increasing number of companies are planning to cut spending, which could disrupt the current delicate balance. They are starting to talk about layoffs

Weak consumer confidence, sluggish wage growth, and low demand for large-ticket items such as housing and automobiles all indicate that the economy still faces unmanifested resistance, which may limit the possibility of accelerating inflation.

Timiraos summarized that the result is that Powell faces an almost impossible task: to form the usual broad consensus in the face of significant divisions:

Regardless of the outcome, the December FOMC meeting may see at least three dissenting votes—if rates are held steady, there will be opposition from three Trump-appointed governors; if a 25 basis point cut is made, there may be another group of at least three officials opposing.