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Powell’s Fed Sticks Together in Fight Against Inflation Despite Differences

(Bloomberg) -- For all the tough decisions Federal Reserve officials have made during their 20-month inflation battle, you wouldn’t know it from looking at the policy votes.

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Over the past 11 meetings of the Federal Open Market Committee, not a single member voted against the actions led by Chair Jerome Powell, an unusually long stretch of unanimity that belies underlying differences and uncertainty over the direction of monetary policy and the economy.

The policy consensus – which matches a previous stretch of 11 unanimous decisions during the pandemic – has allowed the Fed chief to present a united front to markets and the public that reinforces the central bank’s commitment to quashing inflation. But it also risks amplifying criticism that the Fed is hamstrung by group think, which critics say led to treacherous foot-dragging when inflation picked up in 2021.

“The Federal Reserve thinks it is well served by staying on point with the message of getting inflation back to its goal,” said Karen Dynan, a Harvard Kennedy School professor and former Fed economist. “I do think the communication may be understating the diversity of views” on the committee.

Minutes from the Fed’s Oct. 31-Nov. 1 policy meeting, set to be released Tuesday, are likely to show a range of views about the possible need to hike interest rates further even though the Fed panel held them steady in a range of 5.25% to 5.5%. There was no dissent in favor of a hike at that meeting despite a run of surprisingly strong economic data.

The agreement among Fed policymakers during Powell’s nearly six years as chairman is historically unique. The Fed chief averaged about 0.3 dissents per meeting through November, according to a Bloomberg analysis of FOMC votes. That’s one-fourth as many as Paul Volcker and nearly half as many as Alan Greenspan, who famously kept a tight rein on the institution he oversaw for 18 years.

Current policymakers argue that if the moment warrants, they won’t hesitate to vote differently from their colleagues.

“There’s definitely not group think,” Atlanta Fed President Raphael Bostic, who’ll become a voting member of the FOMC in 2024, said in an interview earlier this month. “Every meeting is live for the full range of responses. And a lot of it depends on sort of where the consensus emerges as to how I will react or respond to that.”

Minneapolis Fed chief Neel Kashkari, who has voted against the consensus four times since becoming a Fed bank president in 2016, said that while dissents are a healthy part of the deliberative process, surprising turns in the economy have tempered confidence in his own views.

“There’s just been so much uncertainty about the dynamics that led to the high inflation, why it was so persistent, and even now the disinflationary process is surprising us,” said Kashkari, who votes this year. “It’s hard for me to have enough conviction to say I’m right and the rest of the committee is wrong.”

Frequent Communication

The past 11 meetings cover a period when there was broad consensus – inside and outside the Fed — that policymakers were behind on inflation and needed to get rates higher quickly. More recently, however, officials slowed and then paused rate hikes as they weighed the effect of tightening financial conditions against the risk that strong growth could reignite price pressures.

Former St. Louis Fed President James Bullard , who in his 15 years on the FOMC dissented four times and was known for his sometimes contrarian takes on the economy or policy, said unanimity is the result of more communication between committee members and the Fed chair.

Powell’s schedule shows he speaks with all FOMC participants before each policy meeting. It’s a practice started by former Chair Ben S. Bernanke that continued under Janet Yellen, Bullard said.

The conversation “gives the chair a chance to tweak things or just accept the difference” if a policymaker decides to dissent, said Bullard, who is now dean of the Daniels School of Business at Purdue University.

Fed officials also share their views in public often now, lessening the need to make a point through dissent, he added.

There can be disadvantages to unanimity, however, Fed watchers and former central bank officials said.

Former Fed Vice Chair Donald Kohn and Brown University Professor Gauti Eggertsson noted that there were no dissents around the time the Fed misread inflation risks.

That raises “questions about whether committee discussions and decisions were being sufficiently challenged by diverse viewpoints,” they wrote in an August paper published by the Hutchins Center at the Brookings Institution. “The committee should ask itself whether different aspects of its decisions and decision making are allowing sufficient scope for effective challenges to the majority view.”

At his November press conference, Powell tried to make clear that further rate increases were still a possibility, saying the committee was “attentive” to data showing the persistent strength of the economy. Markets, anxious for a policy pivot, paid more attention to his suggestion that the committee was proceeding carefully as it assessed whether further hikes were needed.

A dissent might have served a more convincing message that the option to raise again was still on the table.

“Reversing the norm of low dissents is hard once it is established,” said Ellen Meade, a former Fed board senior adviser who is now a professor at Duke University.

Read More: Powell Hints Fed Is Done With Hikes in Pivot Cheered by Markets

Former Richmond Fed President Jeffrey Lacker, who dissented during the Bernanke and Yellen terms, said at a conference sponsored by the Mercatus Center of George Mason University last month that the FOMC “seems to be behaving more like a corporate board, keeping dissenting views internal and hewing to the ‘house view’ externally.”

With one more meeting in December ahead of them, officials may just be waiting for more information. Inflation measured by the core consumer price index moderated last month, further cementing views in markets that the hiking campaign is over.

“Now the decisions are much finer: Are we done?” said Stephen Stanley, chief economist at Santander US Capital Markets LLC. “That is the time when you might expect to see more dissents.”

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