The Fed Is Fracturing

Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world. What's going on, guys? It is Thursday, December 11, and that means we are talking, of course, about the FOMC meeting that just was. Before we get into that, however, if you are enjoying the breakdown, please go subscribe to it, give it a rating, give it a review, or if you wanna dive deeper into the conversation, come join us on the Breakers Discord. You can find a link in the show notes or go to bit.ly/breakdownpod. Alright, friends. Well, a deeply divided Fed did end up cutting rates, but that might be it for the cutting cycle. On Wednesday, chair Jerome Powell delivered the most contentious cut in almost a decade with three dissents on the FOMC and even more disagreement from non voting regional presidents. Trump aligned Fed governor Stephen Moran once again dissented on the dovish side, preferring a 50 basis point cut. Meanwhile, Austan Goolsbee from Chicago and Jeff Schmidt from Kansas City also dissented, but in the other direction voting to hold rates steady. This meeting featured a new summary of economic expectations or SEP, which includes the dot plot. That means we got to see how each of the Fed presidents would have decided if they had a vote to cast. Six members marked down no rate cut to end this year, implying they would have dissented. So four Fed presidents registered their silent dissent through the SEP, and six of 12 presidents were against this cut. Patrick Harker, who retired as Philadelphia Fed president in June commented to Bloomberg, it's very unusual. In my ten plus years of being involved with the Fed, I haven't seen this. However, he continued, I would have been one of those silent dissents. I think the cut is a mistake. The argument for holding rates steady at this meeting is that GDP has been surging, suggesting a risk that inflation comes roaring back. The Atlanta Fed's GDP Now estimate for q three is currently at 3.5% and had been as high as 4% in late November. Q two GDP growth was 3.8%, so it looks like The US economy, at least in terms of GDP, is rebounding strongly from a slightly negative print in q one. Commenting on the disagreement, Powell said, a very large number of participants agree that risks are to the upside for unemployment and to the upside for inflation. So what do you do? You got one tool. You can't do two things at once. It's a very challenging situation. Although Powell has been a consensus builder throughout his time as Fed chair, the disagreements are now clearly breaking through. The dot plot showed a huge spread of rate predictions for next year, the median forecast was for a single cut but that understates the spread of opinions. Three FOMC members penciled in a hike, or more likely …