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December 2024 marked the second-to-last time there was a dissent by an FOMC voting member. The dissent, at the time, was a sole vote by Jefferey Schmid against cutting rates. The last dissent was yesterday. While the Fed voted to maintain the Fed Funds rate at 4.25-4.50%, Michelle Bowman and Christopher Wallace cast dissenting votes in favor of reducing rates.
Such was the first time two members dissented since 1993, as shown below. The two dissenting votes at yesterday’s meeting inform us that the tide is turning, and the rationales for not cutting rates are fading.
The Fed made two changes to its statement from six weeks ago as follows:
- Replaced “economic activity has continued to expand at a solid pace” with “growth of economic activity moderated in the first half of the year“
- Removed “diminished” from “uncertainty about economic outlook has diminished but remains elevated“
In our opinion, the changes to the statement and the dissent votes point to slightly more dovish messaging by the Fed. Based on the market reaction, the markets do not agree with our take. In a section below, we share some quotes and commentary from Powell’s press conference.
When Powell Speaks, Investors Listen
The following bullet points are from Jerome Powell’s post-FOMC press conference:
- The economy is not acting like policy is restrictive; thus, according to Powell, current monetary policy seems appropriate. That said, he recognizes “downside risks to the labor market are certainly apparent.”
- Labor market growth is slow, but it’s tempered as the workforce shrinks due to immigration policies. Thus, Powell believes the labor market is “balanced.”
- In regards to a potential September rate cut: “We have made no decisions about the September meeting.”
- The dissent votes resulted in good discussions about monetary policy at the meeting.
- Powell thinks it’s too early to evaluate how tariffs will impact inflation. He believes the process will be slower than they initially thought. He still thinks it’s reasonable to assume these will be “one-time price effects.” “We will make sure this doesn’t turn into serious inflation.“
- Services inflation is offsetting goods inflation due to tariffs.
- Interestingly, he said they “could look through inflation by not hiking.” “A pretty reasonable base case is that this will be a one-time price increase.”
The Fed Funds futures market trimmed the odds of a September rate cut from 68% to 47%. In other words, the market thinks the statement and press conference were slightly hawkish.
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