Analysts Predict Possible Tie in Fed’s Upcoming Interest Rate Vote
The Federal Reserve is approaching a pivotal moment as it prepares for its upcoming interest rate vote on December 9-10. Analysts at Capital Economics suggest that a tie could emerge among policymakers, complicating the decision-making process.
Current Sentiment Among Policymakers
Recent comments from some Fed officials indicate a more hawkish stance. Inflation remains above the optimal target set by the Fed, dampening expectations for rate cuts. However, New York Fed President John Williams recently remarked that there may be “room for a further adjustment” to benchmark rates, influencing market speculation.
- Probability of a rate cut increased from less than 40% to over 70% following Williams’s statement.
- Stock markets rallied in response to these comments.
Potential for a Tie Vote
While some Fed committee members support a rate cut, others express skepticism. The voting dynamics are as follows:
- Four regional Fed presidents, including Susan Collins and Austan Goolsbee, are resistant to rate cuts.
- Fed governors Michael Barr and Phillip Jefferson have also shown caution.
- On the other hand, three governors appointed by former President Trump advocate for cuts, alongside Williams.
As it stands, if the supportive votes reach only four and the opposing votes total six, a tie might occur. This situation raises questions about Federal Reserve Chair Jerome Powell’s ability to influence the outcome.
Consequences of a Tie Vote
A tie at the Fed has never occurred, leaving uncertainty regarding the procedure. According to Robert Eisenbeis, a former director of research at the Atlanta Fed, the absence of an override provision means a tie would result in no change to the federal funds rate. This lack of precedent could complicate subsequent meetings and decision-making.
| Fed Officials | Position on Rate Cut |
|---|---|
| Susan Collins | Against |
| Austan Goolsbee | Against |
| Alberto Musalem | Against |
| Jeffrey Schmid | Against |
| Michael Barr | Cautious |
| Phillip Jefferson | Cautious |
| Michelle Bowman | For |
| Stephen Miran | For |
| Christopher Waller | For |
| John Williams | Potentially For |
Historical Context and Comparisons
Historically, the Fed has avoided tie votes. There have only been three occasions where decisions passed by a one-vote majority since 1973. In the absence of explicit rules around tie-breaking, the situation remains unclear.
Investors may look to the Bank of England for parallels; recently, it navigated a tie during its meetings, leading to a re-vote that altered rates. How the Federal Reserve handles a potential deadlock could set an important precedent in its operational protocol.
