Powell’s Vote-Gathering Challenge Shows Test for Next Fed Chair

Eric Van Nostrand, Global Head of Markets and Chief Economist at Lazard Asset Management, discusses the Fed's path forward and what to expect from this week's FOMC meeting.

The Federal Reserve is expected to deliver a third consecutive interest-rate cut this week, but Chair Jerome Powell’s challenge in getting his colleagues to support that move portends the difficult tests that lay ahead for his successor.

This year’s rate cuts have each come with dissenting votes. Three policymakers are expected to do so again at the central bank’s last gathering of the year.

With just one tool to address two goals that are in conflict — inflation that’s too high even as the job market weakens — the Fed leader famous for mustering consensus even at difficult times is now finding that task nearly impossible.

“I would be more concerned if there weren’t disagreements,” said Loretta Mester, who was president of the Cleveland Fed from 2014 to 2024. “The dissents that we’re seeing really are illustrative of the fact that the economy could evolve in different ways.”

Given that Powell, whose term as chair expires in May, enjoys deep respect across the rate-setting committee, this bodes poorly for the next chair’s ability to corral their 18 colleagues.

Neutral Debate

Fed officials are broadly in agreement about their desire to lower rates to a level that’s not putting significant pressure on the economy nor actively stimulating it. But they can’t agree on where, exactly, that level lies, and that’s driving the increase in dissents.

“That’s the nature of the beast,” said Marc Giannoni, chief US economist at Barclays Capital and former research director at the Dallas Fed. “It’s much harder to argue whether policy is really neutral, expansionary or restrictive at this point.”

The six weeks since the last Fed meeting laid bare the differing opinions over how many more rate cuts are needed. As officials volleyed preferences back and forth — some urging more to support a flagging labor market and others arguing for a pause as they eyed persistent inflation — market odds of a December rate reduction swung in tandem.

Treasury yields climbed to the highest in more than two months, following losses in most global government-bond markets, ahead of a Federal Reserve interest-rate decision that may alter expectations for monetary policy in 2026.

US yields rose from 3 to 4 basis points across the curve, with intermediate maturities proving the weakest. The market trimmed losses and a sale of $58 billion of three-year notes at 1 p.m. New York time, arrived at a lower than forecast yield, a sign of better than anticipated demand. Auctions of $39 billion 10-years and $22 billion 30-years are set for Tuesday and Thursday, respectively.

The Treasury shifted this week’s auction schedule to accommodate the Fed’s two-day meeting, which concludes with Wednesday afternoon’s announcement. Traders see a roughly 90% chance that the central bank will deliver a third straight quarter-point reduction, to a range of 3.5% to 3.75%. Market participants will focus on officials’ outlook for 2026 — through their so-called dot plot — with inflation remaining stubbornly elevated.

“The expected Fed rate cut this week is expected to come with a hawkish tone and a potentially extended pause next year,” said John Canavan, lead analyst at Oxford Economics. “A strong signal that the Fed is prepared for an extended pause could leave investors disappointed,” with markets pricing in greater than 90% odds of another cut by April.

The benchmark 10-year Treasury yield, which helps determine borrowing costs for home loans and corporate borrowing, rose 4 basis points to 4.17% Monday. The 4.2% level in the maturity has capped rates since September. The 30-year yield was around 4.82%, near the highest since September.

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