A consensus view on Wall Street for a rate cut next month doesn’t mean there will be a consensus on the Federal Reserve as policymakers still appear divided.
That sets up another FOMC meeting with dissenting votes, after two policymakers voted to lower rates last time, going against the majority that kept rates steady.
While Powell counts as one vote on the FOMC, he carries outsized influence as the chairman and could prove to be decisive in another split vote.
“Guidance from a range of Fed speakers was mixed this week, while the July minutes struck a modestly hawkish tone,” JPMorgan economists led by Bruce Kasman wrote in a note on Friday. “A consensus decision in September looks unlikely, and it is Chair Powell who holds the key to the meeting’s outcome.”
Another contested meeting would mark further deviation from the Fed’s traditional consensus-driven decision-making process, which typically results in unanimous votes.
But future meetings could see continued division as hawks point to inflation still running above the Fed’s 2% target and other economic data signaling resilience. Indeed, the composition of the Fed is in flux, potentially leading to more push and pull among policymakers.
And even if the Fed lowers rates next month, the pace of future cuts isn’t clear, providing more fodder for debate at the central bank as Trump-appointed officials push for dovish policy.
Some Wall Street analysts don’t see an aggressive easing cycle on the horizon, and Powell indicated any rate cuts would happen in a cautious manner.
“This message may not be welcomed by an administration looking for immediate aggressive easing,” JPMorgan said.
Capital Economics chief markets economist John Higgins said in a note Friday that Powell “poured three cups of cold water” on hopes for a major loosening of Fed policy.
They include indications that the current rate is only modestly restrictive, that the neutral level may be higher than in the 2010s, and that a revised policy framework would return to a more symmetric approach to upside and downside inflation risks.
Similarly, Ryan Sweet, chief US economist at Oxford Economics, said a rate cut in September would be more akin to an “insurance” move as Powell has previously vowed not to be late on labor market signals.
In fact, his stance veers away from others at the Fed as he puts greater emphasis on the employment side of the dual mandate while tariffs are expected to cause a short-lived bump in inflation.
“Powell appears to be setting the stage, assuming the economy performs as he expects and risks do not change appreciably, for a gradual approach to normalizing interest rates,” Sweet said in a note. “In other words, one cut at every other remaining meeting this year.”
