Sharp divisions have emerged among Federal Reserve officials regarding the direction of interest rates, raising uncertainty about whether the central bank will lower its key rate at its December meeting. This follows months of speculation that a rate cut was almost certain.
In recent public statements, some Fed policymakers have expressed concern over persistent inflation. These worries echo broader concerns about affordability that were prominent during recent elections. Other officials, however, are more troubled by slow hiring and the possibility that the current “low-hire, low-fire” job market could deteriorate into increased layoffs.
Luke Tilley, chief economist at M&T Bank, commented on the situation: “It’s reflective of a ton of uncertainty. It’s not surprising at all that there’s a wide divergence of opinions.”
The disagreement within the 19-member Federal Open Market Committee is driven by factors such as tariffs, artificial intelligence advancements, and shifts in immigration and tax policy.
A delay or reduction in rate cuts could mean borrowing costs for homes and cars remain high. Higher mortgage and auto loan rates contribute to widespread sentiment that living costs are elevated.
Some analysts expect an unusual number of dissenting votes at the upcoming December 9-10 meeting regardless of the decision made. Krishna Guha from Evercore ISI noted that if rates are cut, as many as four or five officials might dissent; if they are held steady, three dissents could occur. Four dissents would be rare—the last instance was in 1992 under then-Chair Alan Greenspan.
Fed governor Christopher Waller addressed criticism about groupthink at the Fed: “People who are accusing us of this, get ready,” he said Monday in London. “You might see the least group think you’ve seen … in a long time.”
Recent interruptions in economic data collection due to a government shutdown have complicated matters for Fed officials who rely on updated figures to inform their decisions. The most recent jobs report covers August; September’s employment numbers will be released Thursday and are expected to show only modest growth with unemployment remaining at 4.3%.
Currently, Wall Street estimates put the probability of a December rate cut at around 50%, down significantly from nearly 94% one month ago according to CME Fedwatch data. This decline has contributed to stock market drops this week.
After reducing rates in September for the first time this year and again on October 29, Fed Chair Jerome Powell cautioned against assuming another imminent cut: “not a foregone conclusion — far from it.”
Statements from regional Fed presidents last week further lowered expectations for a December reduction. Susan Collins of Boston noted: “in all of my conversations with contacts across New England, I hear concerns about elevated prices.” She argued maintaining current rates near 3.9% would help reduce inflation and stated that “the economy has been holding up quite well” despite higher interest rates.
Other regional presidents—including Raphael Bostic (Atlanta), Alberto Musalem (St. Louis), and Jeffrey Schmid (Kansas City)—have echoed these inflationary concerns. Schmid dissented last month by favoring no change to rates: “When I talk to contacts in my district, I hear continued concern over the pace of price increases,” he said Friday.
Schmid added: “Some of this has to do with the effect of tariffs on input prices, but it is not just tariffs — or even primarily tariffs — that has people worried. I hear concerns about rising health care costs and insurance premiums, and I hear a lot about electricity.”
Conversely, Waller highlighted weak hiring as his main worry while advocating for another rate cut next month: “The labor market is still weak and near stall speed,” he said Monday. He also downplayed inflationary effects from tariffs through September.
Waller questioned arguments for keeping rates high simply because inflation has exceeded target levels over several years: “You can’t just sort of say it’s been above target for five years, so I’m not going to cut,” he added. “You got to give us better answers than that.”
Esther George—former president of Kansas City’s Fed—suggested consensus may emerge if upcoming data shows job losses over October and November.
Despite expectations earlier this year for multiple dissents during previous meetings, only Stephen Miran—a Trump-appointed governor—voted against September’s rate cut decision in favor of an even larger reduction.
