Jerome Powell, chairman of the Federal Reserve, should be preparing for a fiery confab on December 9-10. He’s leading the effort to drum up support for a third consecutive quarter-point cut to the Federal Funds rate. The stakes are high, as Powell’s ability to navigate internal dissent could significantly impact market confidence and the central bank’s credibility.
Recent comments from former President Donald Trump have piled even more pressure onto Powell’s position. Trump has directly attacked Powell’s leadership at the central bank. Last month, for instance, he said he definitely wanted to “fire his ass” and referred to him as “this clown.” Such statements have intensified scrutiny on Powell’s decisions, making it even more challenging as he prepares for this crucial Federal Open Market Committee (FOMC) meeting.
On the aforementioned analysts expect Powell to push for a quarter-point cut at a future FOMC meeting. The outlook is cloudy, with some economists forecasting as many as three Fed dissidents voting against such a step. Any resulting dissent would put the rare coalition behind the committee’s work at risk. This last point becomes particularly important if the subsequent vote is going to conclude in a close 8-4 or 7-5 tally. These types of results might undermine investors’ faith in what the Fed’s up to.
With inflation recently ticking back up, that risk is becoming an ever-closer reality. Powell and most of his Board colleagues have a laser focus on labor market conditions. Concerns about hiring and unemployment have been at the heart of their rationales for delaying rate cuts. John Williams, president of the New York Fed, echoed this sentiment by stating that Powell likely supported his viewpoint on the need for further adjustments in the Fed’s short-term rates.
“I still see room for a further adjustment.” – John Williams
At least many of the Fed officials who set monetary policy think the current inflation spike will prove a temporary problem. They blame outside forces, including the Trump administration’s tariffs, as the main factors. Williams sees these inflationary pressures returning to their pre-pandemic norms by the middle of 2026.
Investors have shifted these expectations for a first rate cut forward dramatically, in reaction to the ongoing economic turmoil. In terms of positioning, as per CME Fedwatch, the odds are currently a robust 89%. Financial markets are tingling with excitement. Traders will now be watching closely for signals from Powell about his plans and how he intends to manage the committee moving forward.
Kathy Bostjancic, chief economist at Nationwide, thinks a rate cut is a possibility. She cautions it may be accompanied by directions that suggest a suspension is to follow. This smart strategy would go a long way toward allowing the Fed to manage expectations and bolster its credibility in committing the Fed to maximizing employment.
“What they may end up agreeing to do is cut rates now, but give some guidance … that signals that they’re on pause for a while after that.” – Kathy Bostjancic
Moreover, Nathan Sheets highlighted the significance of Powell’s leadership in this challenging environment, stating, “You’re seeing the power of the chair.” This highlights Powell’s important role in setting the agenda and tone for policy debate and keeping the Committee together in the face of external pressure.
As the meeting approaches, FOMC members are especially attuned to the toll their decisions will take. They understand these decisions will reverberate through the international and local market. The risk of fracture among Democrats on the committee underscored an extra layer of complexity to an already complicated decision-making process.
William English articulated the uncertainty surrounding the meeting, noting, “It’s just a really tricky time. Perfectly sensible people can reach different answers.” Indeed, the above highlights of the committee’s differing views exemplifies as they weigh further monetary easing’s risks vs. its risk. They focus on that reality against the backdrop of today’s inconsistent economic indicators.
