Federal Reserve set to cut rate but may signal a pause to come

By CHRISTOPHER RUGABER Associated Press Economics Writer WASHINGTON AP The Federal Reserve faces an unusually contentious meeting this week that will test Chair Jerome Powell s ability to corral the necessary advocacy from fellow policymakers for a third straight interest rate cut Related Articles In the current era in History December A Charlie Brown Christmas premieres Judge wants whistleblower to testify in contempt probe of Trump official over planes to El Salvador Former Colorado clerk will remain in state prison after a federal judge rejects her bid for freedom Affordable Care Act enrollment is slightly ahead of last year so far despite expiring subsidies ABC signs Jimmy Kimmel to a one-year contract extension months after temporary suspension The Fed s -member rate-setting committee is sharply divided over whether to lower borrowing costs again The divisions have been exacerbated by the convoluted nature of the market Inflation remains elevated which would typically lead the Fed to keep its key rate unchanged while hiring is weak and the unemployment rate has risen which often leads to rate cuts Various economists expect three Fed administrators could vote against the quarter-point cut that Powell is likely to advocacy at the Dec - meeting which would be the largest part dissenting votes in six years Just of the members vote on rate decisions Several of the non-voting executives have also reported they oppose another rate cut It s just a really tricky time Perfectly sensible people can reach different answers revealed William English an economist at the Yale School of Management and a former top Fed staff member And the committee kind of likes to work by consensus but this is a situation where that consensus is hard to reach The debate which has also been fueled by a lack of official federal material on employment and inflation during the authorities shutdown could be a preview of where the Fed is headed after Powell s term as chair ends in May His successor will be appointed by President Donald Trump and is widely expected to be Kevin Hassett the top White House economic adviser Hassett may push for faster cuts than other personnel would be willing to help English stated the expected for greater disagreement could be seen as a sign of healthy debate between different views The Fed s tradition of reaching unanimous or nearly-unanimous decisions has often been criticized as evidence of groupthink Yet particular Fed leaders warn that there are downsides to sharp splits If the committee votes end up as - or even - then financial markets could lose confidence in where the central bank is headed next Fed Governor Christopher Waller for example has noted that in the matter of a - vote if just one official changed their view it could bring about a vital shift in Fed guidelines For now however greater part economists expect what s called a hawkish cut the Fed will reduce rates while also signaling that it may stand pat for a few time to assess the economic system s strength Hawks refer to bureaucrats who generally patronage higher rates to combat inflation while doves more often backing lower rates to boost hiring FILE A seal is seen before Federal Reserve Chairman Jerome Powell walks out to speak during a news conference following the Federal Open Sphere Committee meeting Sept at the Federal Reserve Board Building in Washington AP Photo Jacquelyn Martin File The president of the Kansas City Federal Reserve Bank Jeffrey Schmid is expected to dissent for a second straight meeting in favor of keeping rates unchanged He may be joined by St Louis Fed president Alberto Musalem Fed governor Stephen Miran who was hurriedly appointed to the Fed s board by Trump in September will likely dissent for a third straight meeting in favor of a larger half-point reduction in the Fed s key rate After the Fed s last meeting Oct - several policymakers mentioned they would prefer to keep rates unchanged at the December meeting leading Wall Street investors to briefly downgrade the odds of a third rate cut to less than But then John Williams president of the New York Fed disclosed that this year s uptick in inflation appears to be a temporary blip driven by Trump s tariffs that would likely fade by the middle of As a outcome I still see room for a further adjustment in the Fed s short-term rate Williams revealed As president of the New York Fed and vice chair of the rate-setting committee Williams gets to vote on every interest rate decision and is close to Powell Analysts stated it was unlikely Williams would have made such a report without Powell s promotion Investors rapidly lifted the odds of a cut which now are at according to CME Fedwatch You re seeing the power of the chair explained Nathan Sheets chief global economist at Citi and also a former top Fed staffer Members of the committee my instinct is are wanting to underscore their help for Powell Powell has come under relentless attack from Trump who just last month commented he would love to fire his ass and called Powell this clown The Fed is required by Congress to seek low inflation and maximum employment two goals that are potentially in conflict For now Powell and numerous other Fed functionaries are more concerned about hiring and unemployment rather than inflation While the official ruling body jobs reports have been delayed in September the unemployment rate ticked up to the third straight increase and the highest in four years Payroll provider ADP meanwhile disclosed that in November its statistics exhibited companies shed jobs And countless large firms have stated sweeping layoffs Worries that the job domain could get worse are a key reason a rate cut in December is likely but not necessarily beyond that Fed leaders will have up to three months of backlogged jobs and inflation records to consider when they meet in late January Those figures could show inflation remains stubbornly high or that hiring has rebounded which would suggest further cuts aren t needed What they may end up agreeing to do is cut rates now but give particular guidance that signals that they re on pause for a while after that Kathy Bostjancic chief economist at Nationwide disclosed