Twelve FOMC members, five already lean towards "no rate cut." The market is "counting votes" among Fed members: "Powell is staying out of the spotlight now so that everyone's voice can be heard."

Internal divisions within the Fed intensified ahead of the December policy meeting, with voting committee members taking noticeably different positions while Chairman Powell remained silent.

New York Fed President Williams signaled support for a rate cut on Friday, while several policymakers had previously leaned against rate cuts. His statement boosted market expectations for a December rate cut, with the probability shown by federal funds futures rebounding from below 30% to over 60%.

Since the October 29 policy meeting, Powell himself has not spoken publicly. Of the 12 voting members of the Federal Open Market Committee, 5 have stated they favor keeping rates unchanged, creating an almost evenly split situation that means dissenting votes could emerge no matter what decision is made on December 10.

This situation highlights the Fed's dilemma between supporting a weakening labor market and curbing inflation. A government shutdown has delayed the release of key economic data, further complicating policymaking.

Market in “vote counting” mode

Investors are shifting from focusing on the Fed's overall consensus to calculating individual policymakers’ voting tendencies. Ahead of the October policy meeting, the market believed a December rate cut was a done deal. But as hawkish voices emerged, the probability of a rate cut fell below 30%, only to be reversed again by Williams’ Friday statement.

This back-and-forth has disrupted market judgment regarding the next move in interest rates. For a long time, the Fed took pride in consensus decisions, a hallmark feature since Powell took charge in 2018. But now this model is facing a test.

New Century Advisors Chief Economist and former Fed economist Claudia Sahm said:

Powell isn't appearing now so that every member of the Open Market Committee has the chance to speak and be heard. He is giving them space for these differences, which is actually a good thing because it’s tough—these debates should happen.

Dissenting votes break Powell era record

Dissenting votes, once rare during Powell’s tenure, have increased noticeably this year. Since June, no Fed policy decision has passed unanimously. Research shows that a low number of dissenting votes can signal decision confidence and ensure clear, effective communication, but critics say it can also lead to the suppression of important opinions through “groupthink.”

"To those who accuse us of groupthink, be prepared. You may see the least groupthink from the Federal Open Market Committee in a long time," said Fed Governor Waller on Monday.

Waller and colleague Bowman voted against keeping rates unchanged in July, marking the first time in 32 years that two Fed Governors opposed the Chairman. In the September meeting, Governor Milan—who was nominated by Trump and joined the Fed that month—voted against the 25 basis point rate cut, advocating for a larger cut. At the October meeting, Milan again cast a dissenting vote, while Kansas City Fed President Schmid voted from the opposite direction, favoring keeping rates unchanged.

Doves turning cautious

More and more policymakers have voiced concerns similar to Schmid’s. Among the 12 officials with voting power this year, 5 have expressed a preference to keep rates unchanged next month.

“We now need to be very careful with monetary policy,” said Fed Governor Barr, who previously tended to support the labor market, this week.

Other former doves have also hinted they now lean toward keeping rates unchanged next month. Chicago Fed President Goolsbee has never cast a dissenting vote during his nearly three-year tenure, but he said he would if necessary. On Thursday, Goolsbee said at a press call:

If I end up feeling strongly in one direction, and it’s different from others, so be it. That’s fine, I think it’s healthy, and I think dissent isn’t a problem.

He acknowledged there have been more dissenting votes this year than in the Fed’s recent history, but also called it healthy. From a longer-term perspective, this is not unprecedented: during the Fed’s aggressive rate hikes to fight high inflation in the 1980s and when many policymakers worried about excessive easing in the 1990s, dissenting votes were common.

December decision becomes a "coin toss"

“Uncertainty is a common feature of macroeconomics and monetary policymaking,” said Dallas Fed President Logan on Friday. “Policymakers can't precisely know the current state of every aspect of the economy, let alone how every part operates or what shocks may emerge. But policymakers still must make policy decisions.”

The December decision is becoming the closest vote in years. Some, like Deutsche Bank Senior Economist Brett Ryan, believe Williams’ Friday comments sealed a rate cut. But others are not so sure.

“I really think it’s still fifty-fifty,” said Sahm.

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