The US Federal Reserve kept a broadly united front in cutting interest rates by 25 basis points on Wednesday, despite a mounting pressure campaign from President Donald Trump.
Analysts had anticipated Wednesday's decision could lead to dissents within the Federal Open Market Committee, with one group arguing for a larger rate cut and a second favouring no cut at all.
In the end, Fed Chair Jerome Powell secured a near-unanimous decision.
“[Mr Powell] has done a good job of building consensus,” said Art Hogan, chief market strategist at B Riley Wealth.
Only Stephen Miran, a top economic ally of Mr Trump who was sworn on to the Fed board on Tuesday, dissented against the result in favour of a 50-basis-point cut.
Mr Powell said there “wasn't widespread support at all” for a rate cut that large. “The only way a single voter can drive change is by making an incredibly persuasive argument,” he said.
The near-unanimous result showed some reprieve amid concerns over the Federal Reserve's independence, which economists hold as sacrosanct in maintaining financial stability.
Mr Trump has repeatedly demanded aggressive interest rate cuts this year, with those demands largely being ignored by Mr Powell and his colleagues. On Monday, he said the Fed should deliver a much larger rate cut than the quarter-point reduction markets had priced in.
Fed governors Michelle Bowman and Christopher Waller, who dissented against holding rates steady in July, voted with Mr Powell on Wednesday. Both are under consideration to replace Mr Powell when his term as Fed chairman expires next year.
“The fact that there was only one dissenter means there's only one active member of the Federal Open Market Committee who is interviewing for the job of Fed chair next year,” Mr Hogan said.
“Having that one dissent is almost like having an asterisk.”
chief market strategist at B Riley Wealth
But Peter Andersen, founder of Andersen Capital Management, said Mr Powell is in a “no-win position to cut rates”.
“I think his credibility has been put at risk with this rate cut because he's trying to navigate what he should be doing, but there's this spectre of relentless pressure of trump to cut rates,” Mr Andersen said.
Divisions in the fine print
Mr Miran was also an outlier in the Fed's updated quarterly economic forecasts. According to the so-called dot plot, where every member on the 19-person committee predicts where interest rates will fall, economists believe the lone dot sitting between 2.5 and 3 per cent for 2025 to be his.
“The addition of his dot pushed down the median rate projection for this year to 3.5 per cent to 3.75 per cent,” Michael Pearce, deputy chief US economist at Oxford Economics, wrote to clients.
“That median hides the deep split on the FOMC – nine of 19 members don't anticipate further cuts this year."
Those divisions underscore the predicament the Fed faces, which is that there are risks to both sides of its dual mandate of price stability and maximum employment.
Wednesday's cut indicated Mr Powell was able to steer the committee towards buttressing the labour market, but he said the FOMC is not hurrying to return to the rate at which policy neither restricts nor loosens the economy.
Derek Tang, an economist at LHMeyer / Monetary Policy Analytics, said that even without Mr Miran, the Fed is “leaning a little more” towards two additional rate cuts this year as opposed to one.
“It’s not that heavy of a lean … but for us it’s enough to tip the balance when it comes to October,” he wrote.
The Fed is due to hold its next meeting on October 28 and 29, where futures markets anticipate a second consecutive 25-basis-point cut, according to CME Group data.
