The Fed is so divided that the next vote on rates could result in an unprecedented tie, analysts say

After two previous cuts, recent comments from policymakers have been hawkish as inflation remains stuck above the Fed’s target, dampening hopes for further easing at the Federal Open Market Committee meeting on December 9-10.

But New York Fed President John Williams surprised Wall Street on Friday when he said he saw “room for further adjustment in the near term” to bring benchmark interest rates closer to neutral.

That has boosted prospects for a rate cut next month to more than 70% from less than 40% the day before, while also sparking a broad-based stock market rally. But it will also likely pose some difficult calculations for the 12-member Federal Open Market Committee.

In a note on Friday, economists at Capital Economics attempted to tally the votes. The four regional Federal Reserve bank presidents on the panel – Susan Collins, Austin Goolsbee, Alberto Muslim and Jeffrey Schmid – appeared skeptical or “totally hostile” to the idea of ​​cutting interest rates next month. Federal Reserve Governors Michael Barr and Philip Jefferson also signaled caution.

On the dovish side, the three Trump-appointed Fed governors — Michele Bowman, Stephen Meyran, and Christopher Waller — have called for lower interest rates, and Williams on Friday looked like he could join them.

“There are still only four in favor of a cut and six against, but to the extent that Williams and Fed Chairman Jerome Powell often have the same opinion (and Governor Lisa Cook usually votes with Powell), we could have a six-and-six tie,” Capital Economics said.

“Then things will get really messy because it’s not clear that Powell has a swing vote, so the vote to change the policy might simply fail,” he added.

The Labor Department’s September jobs report, released Thursday after being delayed due to the government shutdown, is unlikely to tip the scales.

This is because mixed data showed more-than-expected job growth, but previous months were revised downward with August now showing a decline. The unemployment rate also rose to 4.4%, the highest since 2021, from 4.3%.

Separate data on weekly unemployment claims still does not indicate a rise in the number of newly unemployed people, but a steady rise in continuing claims means jobs are harder to find.

What if there is a tie vote on the Fed?

There has never been a tie vote at the Fed, and the FOMC’s rules and procedures do not discuss such a scenario.

Robert Eisenbeis, who previously served as research director at the Federal Reserve Bank of Atlanta, said: luck Earlier this year, in the event of a tie vote, the federal funds rate would remain the same.

He explained via email that there is no override clause, meaning the president has no ability to impose a different decision. It is also not clear whether policymakers will hold another vote during the same meeting or wait until the next scheduled meeting to vote.

“There is no precedent here,” Eisenbeis said in August. “I assume there will be an option to re-vote, but if not, there will be no change in the funds rate. If there is no change in the rate, the next meeting is where another review and vote will take place.”

While the Fed has never had to deal with a tie, it has come close several times. According to a July memo from Christopher Hodge, chief US economist at Natixis CIB Americas, there have been three occasions when an FOMC decision was passed by a single vote, although the last time that happened was in 1973.

Hodge, who previously served as chief economist at the Federal Reserve Bank of New York, previously said luck via email that the tie issue has not been explicitly addressed in any official public documents.

However, the chair has significant power to direct meetings and decisions, he said, noting that the FOMC is also a self-governing committee with the ability to change its rules.

“In the absence of a clear tie-breaking rule, it is generally understood that the chair has the power to cast a deciding vote or direct the committee toward a decision, as is common in other deliberative bodies with a chair,” Hodge explained in August. “This is not spelled out in any document I have seen and is more of a habit than a rule.”

If there is a tie at the Fed, investors may look to the UK for guidance. The Bank of England was forced into a historic impasse this summer after four policymakers voted to hold interest rates steady, four for a quarter-point cut, and one for a half-point cut.

This prompted the bank’s Monetary Policy Committee to hold a decisive re-vote for the first time since its establishment in 1997. The subsequent 5-4 decision lowered interest rates by a quarter point to 4% from 4.25%.