Daily Spotlight: Fed Dissents Put Rate Cuts in Doubt

Summary

The Federal Open Market Committee (FOMS) left its fed funds target unchanged at 3.5%-3.75% for a third consecutive meeting. The policy statement once again included the following. “Job gains have remained low, on average, and the unemployment rate has been little changed in recent months.” But that was about all that went according to script on a day when Jerome Powell was expected to ride into the sunset. The market-moving news from the Fed was that four of the 12 voting members dissented, the most since 1992. That sent the yield on the policy-sensitive two-year note higher and cast doubt on the prospect for lower rates under President Trump’s nominee for Fed chairman, Kevin Warsh. Mr. Warsh’s path to become the next chair was virtually assured in a vote by the Senate Banking Committee. Governor Stephen Miran, who chaired the President’s Council of Economic Advisors before joining the Fed, continued to dissent in favor of a quarter-point cut in the funds rate (which was not a surprise). Three regional bank presidents who are voting members of the FOMC (Beth Hammack of the Cleveland Fed; Neel Kashkari, of the Minneapolis Fed; and Lorie Logan of the Dallas Fed) did not support the statement’s inclusion of an easing bias, although they did support maintaining the target range. The 10-year Treasury yield, which has a greater effect on the economy than the funds rate, has climbed by 50 basis points to 4.43% since the war with Iran sent oil prices higher. Mr. Powell announced yesterday that he would remain on the board “for a period of time to be determined” after his term as chairman ends on May 15. His term