Source item

Good quote by @Claudia_Sahm, and the title of the Bloomberg story is also correct: Fed watching is now about vote counting, not dissecting what the Chairman says (and Powell has not spoken publicly since the October 29 Press Conference). Dissents are the new forward guidance, and it looks like a 7-5 vote to cut is coming in December. Fed Governor Chris Waller signaled the Fed is divided and we are about to see many dissents (from the Bloomberg story): “On the group-think thing, people who are accusing us of this, get ready. You might see the least group-think you’ve seen from the FOMC in a long time,” Fed Governor Christopher Waller said Monday. --- Why did the probability for a December cut soar on Friday (red part of the chart)? Before New York Fed President John Williams spoke Friday morning, the vote tally looked like this. * 5 voters have strongly signaled they do not want to cut rates next month (Barr, Musalem, Schmid, Goolsbee, Collins) * 5 voters signaled they want to cut rates (Miran, Waller, Bowman, Williams, Cook) * 2 voters’ opinions are unknown (Powell and Jefferson) Willams Friday morning from Chile: “I still see room for a further adjustment in the near term to the target range for the federal-funds rate to move the stance of policy closer to the range of neutral." Williams is a close ally of Powell. So, the market is interpreting Williams as speaking for Powell. Meaning the bullets above can shift Powell from 'unknown' to 'cut'. So, six voters for a cut, five voters for holding, and Jefferson is still unknown. But he is expected to do what Powell wants ... 7-5 to cut. The market reacted accordingly. So, why did the probability of a cut end at 63% on Friday, not 95%? Because this is new, and we hope we are interpreting this correctly. And, we are looking at a 7-5 vote. Anyone can switch their outlook and change the outcome. A scenario to consider: Could Lisa Cook vote to keep rates steady instead of cutting them and "stick it" to Trump for trying to fire her, "For Cause" (over her mortgages)? If she did, a 7-5 vote to cut becomes 6-6. (The Fed has never had a 6 - 6 vote; the last 7-5 vote was in 1983.) The Federal Reserve Act has no official procedure for resolving a tie. Generally, the federal funds rate would remain unchanged because there is no provision allowing the chair or anyone else to break the tie. However, the committee might opt for a revote during the same meeting (they did a revote in 1986) or wait until the next scheduled meeting to take another vote.