Fed’s internal split puts spotlight on Powell’s rate guidance, dissents

By Laura Matthews

NEW YORK, Dec 5 (Reuters) – The Federal Reserve meeting next week is expected to be one of its most contentious in years, and investors are focused on how divided policymakers are over an expected interest-rate cut and what Chair Jerome Powell signals about the path ahead.

Five of the 12 voting members of the Federal Open Market Committee have voiced opposition or skepticism about further easing, while three members of the Washington-based Board of Governors favor a cut.

The FOMC has not had three or more dissents at a meeting since 2019, and that has happened just nine times since 1990.

That split puts the dissents under a microscope as investors look for signals at the Tuesday-Wednesday meeting on the Fed’s policy direction and internal dynamics.

“The Fed seems to be more divided than it has been in a very, very long time, and just how divided will be of interest because that will give some sense of perhaps where the Fed might lean in the future,” said Michael Rosen, chief investment officer at Angeles Investments.

Rosen added that the uncertainty stems from the Fed’s challenge of balancing its twin goals of full employment and stable inflation.

Economic data on Thursday showed jobless claims last week fell to the lowest in more than three years, easing fears of a sharp labor market deterioration and feeding rate cut expectations. A Chicago Fed estimate suggested the unemployment rate held near 4.4% in November.

Markets are pricing in an 85% chance of a quarter-point cut at next week’s meeting, LSEG data show.

The Fed last lowered the policy rate on October 29, to a range of 3.75%-4.00% from 4.00%-4.25%, the second consecutive 25-basis-point cut this year.

Powell later jolted markets when he said the likelihood of a cut in December was “not a foregone conclusion”. Stocks reversed gains after that comment, as many investors had priced a rate cut as a done deal. 

Jeremiah Buckley, equities portfolio manager at Janus Henderson, said the December meeting does not matter much for markets in the long term. “Certainly, there could be some short-term volatility, but what they do over the first half of 2026, I think, matters more than December,” he added.

Wall Street’s benchmark S&P 500 index has risen 16.5% so far this year. Tony Roth, CIO, Wilmington Trust, does not expect stocks to move much if the Fed delivers a cut.

“The Fed move is really baked in at this point. It’s really going to be just about the Fed guidance,” Roth said. “And I think they’re going to be pretty cautious. They’re going to talk about being data dependent.”

Complicating the Fed’s deliberations is a backlog of economic data. The 43-day government shutdown, the longest in history, delayed the November employment print until December 16, after policymakers meet. The unemployment rate for October will remain unknown as the shutdown prevented the collection of data for the household survey used to calculate it.

Although somewhat dated, the Job Openings and Labor Turnover Survey data, due December 9, would give markets a glimpse into October’s labor trends – especially layoffs – amid the current low-hiring, low-firing environment.

Some observers don’t believe the odds of a cut are as high as the markets imply, and are more interested in Powell’s statements and how close the policy vote is.

“We don’t think that anything is definite yet,” said David Seif, chief economist for developed markets at Nomura. “So, I definitely think the market is underpricing the risk that the Fed chooses not to cut at the December meeting.” 

Seif said what would be interesting “particularly in the case of a cut, is how much dissent there is.” With four regional presidents rotating off, their stance will reveal how much independence they intend to assert and the pressure they’ll put on the Fed.

“Because it really signals not just what they’re willing to do against Chair Powell, but what they’re willing to do against Powell’s successor as chair. We’re really trying to figure out how much the model at the Fed is changing into a much simpler situation with one person, one vote.”

(Reporting by Laura Matthews in New York; Editing by Alden Bentley and David Gregorio)

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