Investors Focused on Fed Vote Distribution: Rate Cut Expectations

Fed Policy Distribution and Investor Expectations

The longest shutdown in U.S. government history has delayed the release of important economic data. This situation has led to a significant divide within the Federal Reserve (Fed) regarding interest rate cuts. While some Fed members support interest rate reductions, others argue that no action should be taken in this direction during the December meeting.

Differences of Opinion Among Fed Members

In this environment of uncertainty, investors are trying to assess each member's voting preferences to determine their positions. Since the last Federal Open Market Committee (FOMC) meeting on October 29, Fed Chair Jerome Powell has not made any public statements.

Recently, New York Fed President John Williams indicated that a short-term interest rate cut might be necessary to approach a 'neutral level' for interest rates. This situation has raised investors' expectations for a rate cut in December to 60%. However, last week, some hawkish statements from Fed officials briefly lowered this expectation to below 30%.

The Importance of Debates and Historical Voting Discrepancies

Claudia Sahm, chief economist at New Century Advisors and a former Fed economist, noted that Powell's current low profile allows each FOMC member to have their voice heard. This is seen as positive for discussing challenging issues.

In the past, during Powell's chairmanship, who has faced the least opposition since 1979, two Fed officials - governors Christopher Waller and Michelle Bowman - voted in opposite directions simultaneously in July. In the September meeting, Fed Governor Stephen Miran, appointed by U.S. President Donald Trump, requested a rate cut greater than 25 basis points. In contrast, Kansas City Fed President Jeff Schmid argued that rates should be maintained due to inflation concerns.

Among the 12 Fed officials participating in policy votes this year, 5 indicated that they tend to keep interest rates steady next month. This group includes Chicago Fed President Austan Goolsbee, who has not opposed during his 3 years at the Fed.