Powell's Dominance at FOMC Meeting and Milan's Dissent
Leading up to the recent Federal Open Market Committee (FOMC) meeting, some on Wall Street anticipated deeper divisions, even suggesting that Marvin Goodfriend Milan, a newer appointee, might represent a third dissenting voice advocating for a 50-basis-point rate cut. However, contrary to expectations, Governors Christopher Waller and Michelle Bowman, who had dissented in the previous meeting, chose to align with their colleagues this time, leaving Milan as the sole dissenter in an 11-1 vote.
Former New York Fed President William Dudley wrote in an article last Thursday that Federal Reserve Chairman Jerome Powell has a "firm grip" on the FOMC. He added that officials inclined to keep interest rates unchanged deferred to the Fed chair's guidance and agreed to the rate cut.
Unity Amidst Political Pressure
Meanwhile, Bowman and Waller, both appointees of former President Donald Trump, rebuffed Trump's calls for larger rate cuts. "Their actions demonstrated integrity, commitment to the Fed’s mission and the importance of maintaining central bank independence," Dudley wrote.
Others on Wall Street also highlighted the voting disparity, particularly considering Trump's attempts to oust Governor Lisa Cook and the fact that Milan, also a Trump appointee, did not resign from his White House economic advisor role.
LPL Financial's chief economist Jeffrey Roach said in a report last week that the 11-1 decision reflected more alignment than anticipated.
Federated Hermes' senior portfolio manager and head of government liquidity Susan Hill said in a report that while she anticipates continued pressure from the White House, "at least for the moment, most seem to be behind Powell, and I'm sure that explains at least in part why he seemed so calm and confident at the press conference."
Powell's Rebuttal to Milan and the White House
Powell, whose chairmanship expires next May, also appeared to deliver a forceful rebuttal to Milan and the White House in his post-meeting remarks. When asked if there was any internal consideration of a 50-basis-point rate cut, Powell said there was "not broad support for that at all."
Despite Trump's complaints that he acted too late, Powell did not express regret for holding interest rates steady for much of the year. "I think we were right to wait and see how the tariffs, inflation and the labor market evolved," Powell said.
The Fed chair similarly downplayed Milan's recent mention that the Fed should consider moderate long-term interest rates as its third mandate.
Officials have previously insisted that the two primary mandates, price stability and maximizing employment, would result in moderate long-term interest rates as a byproduct.
"For a very long time, we haven’t seen it as a third mandate that requires independent action," Powell said last week. "So that’s just where it is. As far as I’m concerned, there’s no thought of somehow incorporating it in a different way."
For his part, Milan told CNBC last Friday that in referring to the Fed's three mandates, he was simply pointing out what the law says.
He also acknowledged being an outsider at his first meeting but said he would have more time to make his case in subsequent meetings.
Before joining the administration, Milan had called for reforms to the Fed that would weaken its independence and said its consensus-driven approach should give way to more vigorous debate.
But when asked about his first FOMC meeting, Milan described the warmth inside the Fed. He said:
"Everyone was very welcoming and very kind, very gracious, including Governor Cook, and it was a very collegial environment, and everyone was nice to me, and I very much appreciated that."
Further Analysis
It's important to understand the complex dynamics within the FOMC. While a vote may appear outwardly unified, dissenting viewpoints, like the one expressed by Milan, are essential for a robust decision-making process. These discussions ensure that all relevant perspectives are considered before critical monetary policy decisions are made.
Furthermore, it is crucial that the Federal Reserve remains independent from political pressure. Powell's ability to maintain unity within the committee, despite potential political interventions, speaks to the strength of central bank independence.
The Impact of Global Economic Conditions
It's also worth noting that global economic conditions play a significant role in FOMC decisions. Factors such as international trade tensions, currency fluctuations, and global growth outlook can influence the Fed's assessment of the U.S. economy and its monetary policy stance.
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