Disagreements Within the Federal Reserve Intensify

[Ben Graham]

The U.S. dollar has struggled to grow after reports that internal disagreements within the Federal Reserve have intensified in recent weeks.

Officials have taken different positions ahead of the central bank's December monetary policy meeting — all while Chair Jerome Powell has remained silent since his last remarks following the Fed's October meeting.

The situation escalated late last week when New York Federal Reserve President John Williams, sometimes regarded as a confidant of the Fed Chair, voiced support for a rate cut after several other policymakers had spoken out against it.

A series of recent statements indicates that other voting members of the Federal Open Market Committee, which sets interest rates, are now almost evenly divided in their views on the next steps — practically guaranteeing that some will vote against the December 10 decision regardless of the outcome.

Experts note that disagreements were rare under Powell in earlier years, but they have become more common this year. As officials wrestled with the conflicting goals of supporting a weakening labor market and restraining inflation, there has not been a unanimous decision since June. A government shutdown, which delayed the release of several key economic reports, further complicated efforts to reach consensus on policy priorities.

The hawkish faction insists on maintaining a wait-and-see approach, citing persistent inflation. They fear that further rate cuts could undermine efforts to stabilize prices and lead to a renewed acceleration of inflation in the future. The more moderate group acknowledges the progress made in reducing inflation and is concerned about the potential negative impact of further tightening on the labor market. They call for additional easing to support the labor market and the economy.

The absence of public comments from Chair Powell increases uncertainty about the monetary policy outlook. Investors and economists are closely watching for any signals or hints about the direction the central bank intends to take. The December meeting appears to be a key moment in determining the future path of monetary policy and will likely bring significant volatility to financial markets.

"Powell staying out of the discussion right now allows every member of the Open Market Committee to speak up and be heard," New Century Advisors said. "He is giving them the opportunity to express their disagreements, and that is actually a good thing, because the situation is complex and such debates are necessary."

And although the current disagreements only complicate matters, this is not unprecedented in the history of the central bank. Disagreements were plentiful in the 1980s and 1990s, when persistent concerns about price pressures made many policymakers wary of easing too aggressively. In any case, the December decision appears to be the most difficult one in recent years.

Regarding the current technical picture for EUR/USD, buyers now need to think about how to reclaim the 1.1530 level. Only then will they be able to target a test of 1.1565. From there, they might climb to 1.1585, although doing so without support from large market participants will be quite difficult. The most distant target is the 1.1610 high. If the instrument declines, I expect significant buying activity only around the 1.1500 level. If no one steps in there, it may be wise to wait for a retest of the 1.1470 low or consider opening long positions from 1.1440.

Regarding the current technical picture for GBP/USD, pound buyers need to reclaim the nearest resistance at 1.3120. Only then will they be able to aim for 1.3150, above which breaking higher will be quite challenging. The most distant target is the 1.3175 level. If the pair falls, the bears will attempt to regain control of 1.3085. If they succeed, a breakout of this range will deal a serious blow to the bulls and push GBP/USD toward the 1.3060 low, with the potential to reach 1.3040.

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