The Federal Reserve (FED) December rate cut falls into internal strife! Doves 4 votes Hawks 3 votes, Powell casts the key vote.

The probability of the Federal Reserve (FED) lowering interest rates in December has exceeded 80%. Federal Reserve (FED) Vice Chairman and New York Fed President Williams stated that the Federal Reserve (FED) can lower rates “in the near term” without jeopardizing its inflation target. The Federal Reserve (FED)'s stance on lowering rates is inconsistent, with severe infighting among officials. The doves have 4 votes, while the hawks clearly have 3 votes leaning against lowering rates. Federal Reserve (FED) Chairman Powell emphasized consensus decision-making, and he will be the crucial vote at this time.

Williams' words reversed market expectations

(Source: CME Fed Watch)

The remarks by Federal Reserve Vice Chair and New York Fed President John C. Williams have become a key turning point in market expectations. Williams stated at a meeting of the Central Bank of Chile that U.S. interest rates could decline without jeopardizing the Federal Reserve's inflation targets, while also helping to prevent a downturn in the labor market. “I believe monetary policy is slightly tightening… Therefore, I think there is still room for further adjustments in the target range for the federal funds rate in the short term to bring the policy stance closer to neutral.”

The importance of Williams cannot be underestimated. As the President of the New York Federal Reserve, he is a permanent voting member of the FOMC, and the New York Federal Reserve holds a special position within the Federal Reserve System, responsible for conducting open market operations. More importantly, Williams is seen as a “close ally” of Powell, and his statements often reflect the true inclinations of the Chairman. Before Powell enters the quiet period, Williams' remarks may be the last clear signal the Federal Reserve releases to the market.

The Federal Reserve (FED) will enter a silent period starting November 29, during which Powell has no public speaking or media interview schedule. This means that Williams' speech may be the last statement from a Federal Reserve (FED) official to influence market expectations. From a strategic communication perspective, if the Federal Reserve (FED) truly plans to cut interest rates in December, it is reasonable to release signals through Williams before the silent period, which can avoid a significant gap between policy decisions and market expectations.

The market reaction is extremely swift. According to CME Fed Watch data as of November 26, the probability of a 25 basis point rate cut in December has exceeded 80%.

Analysis of the positions of the 12 voting members of the FOMC

The Federal Reserve's Federal Open Market Committee (FOMC) makes decisions by a majority vote, with each voting member having an equal vote. The committee has a total of 12 voting members, including all members of the Board of Governors (up to seven), the President of the New York Federal Reserve Bank, and 4 members who rotate among the remaining 11 Reserve Bank Presidents. The seven Reserve Bank Presidents without voting rights attend FOMC meetings and participate in discussions, but they do not have voting rights.

Clear bias towards interest rate cuts (4 votes)

John C. Williams (President of the New York Fed): believes that interest rate cuts can occur in the near future without jeopardizing the inflation target.

Michelle W. Bowman (Federal Reserve Board Member): stated “Now is the time to take proactive measures to address the decline in the labor market.”

Stephen I. Miran (The Federal Reserve (FED) Governor): Clearly supports a rate cut in December, and even suggested a 50 basis point cut.

Christopher J. Waller (Federal Reserve Board Member): Supports a further 0.25 percentage point cut in December, doubts he will change his mind.

Clear inclination not to cut interest rates (3 votes)

Susan M. Collins (President of the Boston Fed): believes that the threshold for further easing monetary policy is “relatively high”

Alberto G. Musalem (President of the St. Louis Fed): stated that “the room for further easing of policies is very limited”

Jeffrey R. Schmid (President of the Kansas City FED): believes that interest rate cuts have limited benefits for the labor market.

Attitude Swinging or Cautious (5 Votes)

Jerome H. Powell (Chair): In October, he stated that “a rate cut in December is not a done deal.”

Michael S. Barr (The Federal Reserve (FED) Governor): Concerns that inflation is still at 3%, requires caution.

Lisa D. Cook (The Federal Reserve (FED) Governor): stated that “every meeting is an in-person meeting”

Philip N. Jefferson (The Federal Reserve (FED) Governor): believes that it is necessary to “proceed slowly”

Austan D. Goolsbee (President of the Chicago Fed): A bit uneasy about inflation stagnation.

Powell's Decisive Vote and the Trump Factor

Barclays Research indicates that there is still uncertainty regarding the Federal Reserve's interest rate decision next month, but Chairman Powell is likely to push the FOMC to make a decision for a rate cut. Barclays stated, “This means that before considering Powell's position, there may be six voters inclined to keep the interest rates unchanged and five inclined to cut rates.” The bank added that Powell will ultimately dominate this decision, as the threshold for board members to publicly oppose his stance is very high.

Powell's leadership style emphasizes consensus. LPL Financial Chief Economist Jeffrey Roach stated, “In fact, committee members communicate closely during breaks in meetings, working hard to reach consensus, but this does not guarantee that consensus will be achieved.” Achieving consensus among all members of the Federal Reserve (FED) helps convey a consistent message from officials regarding their actions to the market. Divergent voting results may raise questions about whether the Federal Reserve (FED) believes its actions are correct.

The factors of the Trump administration cannot be ignored. White House economic advisor Hassett pointed out that the new leadership of the Federal Reserve may be expected to lower interest rates, and Trump may interview candidates for the Federal Reserve in the coming months. We may confirm the Federal Reserve Chairman candidate around the New Year. The market is currently paying close attention to the Federal Reserve FOMC meeting. If doves like Hassett take over the Federal Reserve, interest rate cuts will become the norm. This political pressure may influence Powell's decision-making, even if he wishes to maintain independence.

CITIC Securities research report stated that, continuing the previous viewpoint, it is expected that there will be a “close call” interest rate cut in December, with a magnitude of 25bps. For the market, the expectation of a rate cut by The Federal Reserve (FED) reverses the pressure from the advancement of the “28-point” plan and the news that the Trump administration is considering exporting H200 chips to China. Macroeconomic factors are no longer a source of pressure for the market in the short term, and the market may focus more on issues such as AI companies issuing bonds and the trends of cryptocurrencies.