The Federal Reserve cut its benchmark interest rate by a quarter-percentage point on Wednesday, but the decision was overshadowed by sharp internal dissent and scathing external criticism of one of its governors.
Wolfers Slams Miran’s Dissent For 50 Bps Cut
Justin Wolfers, an economist at the University of Michigan, slammed Governor Stephen Miran's dissenting vote for a larger cut. In a post on X, Wolfers wrote, “Miran’s problem is that making an utterly incoherent case for rate cuts convinced no-one”.
The Federal Open Market Committee's 10-2 vote revealed a stark divide on the correct path for monetary policy. While the majority voted to lower the target range to 3.75% to 4%, Governor Miran pushed for a more aggressive half percentage point cut.
Arguing from the opposite side, Kansas City Fed President Jeffrey R. Schmid dissented in favor of holding rates steady, preferring no change at all.
Wolfers, a Senior Fellow at the Brookings Institution, directly tied Miran’s move to his recent appointment by President Donald Trump. “If Trump had hoped that appointing a loyalist to the Fed would push it in a more dovish direction, he appears to have failed completely as the Fed swung in a sharply hawkish direction today,” Wolfers wrote, referencing the broader context of the meeting.
Dissent Highlights Fed’s Difficult Position
The dueling dissents highlight the difficult position the Fed is in. The committee’s official statement justified the cut by noting that “downside risks to employment rose in recent months”.
However, it also acknowledged that inflation “remains somewhat elevated”.
See Also: Powell Cools Hopes For December Rate Cut: ‘Far From A Foregone Conclusion’
Economists Echo Federal Reserve’s Dilemma
This split view was echoed by other experts. Jeffrey Roach, Chief Economist for LPL Financial, said the conflicting dissents were “reminiscent of September 2019” when the committee was similarly divided.
The controversy over the dissents complicated a meeting that also included a major policy “twist,” as described by Jamie Cox of Harris Financial Group. The Fed announced it would “conclude the reduction of its aggregate securities holdings on December 1,” a move seen as positive for mortgage rates.
Still, markets reacted nervously. Chris Zaccarelli of Northlight Asset Management noted that stocks and bonds sold off because Chair Powell said an additional rate cut in December “wasn't a sure thing”.
Price Action
On Thursday, the futures of the S&P 500, Dow Jones, and Nasdaq 100 indices were lower. The SPDR S&P 500 ETF Trust (NYSE:SPY) and Invesco QQQ Trust ETF (NASDAQ:QQQ), which track the S&P 500 index and Nasdaq 100 index, respectively, were lower in premarket. The SPY was up 0.20% at $686.00, while the QQQ declined 0.17% to $634.67, according to Benzinga Pro data.
Meanwhile, on Wednesday, the S&P 500 index slipped 0.0044% to 6,890.59, whereas the Nasdaq 100 index rose 0.41% to 26,119.85. On the other hand, Dow Jones declined 0.16% to end at 47,632.00.
Read Next:
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Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
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