The Federal Reserve’s recent 7/26 meeting is notable for some colourful disagreement over dovish tones among its members. The election of new Governor Stephen Miran kicked up these discussions. In fact, this meeting was his first vote since being sworn in earlier in the meeting. His voting record became widely known when he publicly dissented against the majority’s vote to lower interest rates. Instead, Miran pushed for an even bigger half-point reduction, underscoring the divided views within the Fed on the path of policy.
The Fed’s decision to reduce interest rates was widely anticipated, yet the accompanying “dot plot,” which displays individual members’ future rate expectations, revealed a stark divergence in opinions. The voting result was almost unimaginably tight. Supporters of one more rate cut this year missed out by a narrow margin to those in favor of two cuts. The ultimate vote was 10-9, showing just how tight the committee’s internal divisions were on what direction to go.
After the rate cut, the median forecast points to two more cuts this year. It continues to assume a further 6 percent cut in 2026 and a second 6 percent cut in 2027. If these cuts are realized, they will lower the target funds rate to around 3%. In the game, this level is interpreted as a “neutral” stance.
Federal Reserve Chair Jerome Powell characterized this rate move as a “risk management” cut, aimed at balancing the challenges of the Fed’s dual mandate: achieving full employment and maintaining price stability. As the economy operates well, Powell emphasized that strong arguments rooted in economic data will be crucial for any member seeking to influence decisions.
One has to wonder what Miran’s agenda and intentions were from within the committee when he dissented. Some analysts are now arguing that his vote could have been a signal to strengthen his position by shoring up his support among other members. Dan North, a senior economist at Allianz Trade North America, remarked on the dynamics at play:
“Maybe they circled the wagons a little bit saying, ‘You know, this new guy Miran’s coming in, it’s obvious what his agenda is. Let’s pull together here and make sure he knows what we’re about and we’re all about the same thing.’”
Looking ahead, experts anticipate that the Fed will face significant challenges in fulfilling its dual mandate, particularly concerning full employment. Rick Rieder, chief investment officer of global fixed income at BlackRock. He noted that while the economy generally appears very healthy, the labor market is becoming more restrictive for potential hires.
“We think that over the next few years the Fed’s primary challenge with their dual mandate of full employment and price stability will in fact be full employment,” Rieder stated.
And the market cheered the Fed’s moves. As if on cue, after that meeting, the Dow Jones Industrial Average ripped and closed the day up over 260 points. Joseph Brusuelas, the chief economist for the accounting firm RSM, had a dire prediction. He warned not to take the Fed’s forecasts at face value, particularly with personnel changes on the horizon.
“Given the coming changes to Federal Reserve personnel next year, we urge all to take this forecast with more than a grain of salt and would strongly suggest that the Federal Reserve is moving in a direction where it will tolerate inflation well above target,” Brusuelas highlighted.
As discussions continue regarding future rate cuts and the Fed’s evolving strategy, attention turns to potential successors for Jerome Powell. Rick Rieder has been mentioned as a potential nominee if there is ever a change in leadership at the Fed.