Fed Set for 'Foggy' Rate Cut as Committee Fractures Deepen

Chairman Jerome Powell has likened the current environment to “driving in the fog”. He isn’t exaggerating. Due to government shutdowns and administrative delays, the critical November employment and CPI reports - originally due last week - have been postponed until after the decision.  

The Fed is effectively flying blind. Yet, despite the data void, the market has aggressively priced in a rate cut. 

The Williams pivot 

Expectations whipped around in November, swinging from “hold” to “cut” in a matter of days. The catalyst wasn’t data; it was a signal from New York Fed President John Williams. 

While hawks like Governor Michael Barr warned that inflation remains stuck at 3% (above the 2% target), Williams, Powell’s close ally and Vice Chair, broke ranks. His comment that there is “room for further adjustment...to move closer to neutral” was read by traders as the definitive signal that the leadership has decided to cut, regardless of the hawks. 

Following Williams’ remarks, the probability of a 25-basis-point cut to the 3.50-3.75% range surged to nearly 90%, up from just 30% mid-month. 

The committee divide 

Make no mistake: this is not a consensus move. Sandmark’s analysis of recent speeches suggests the 12-member voting committee is split down the middle, with Powell holding the tie-breaking power. 

• The Hawks (5): Led by Michael Barr and Susan Collins, this bloc argues that cutting rates without inflation data is reckless. “When it’s foggy, let’s just be a little careful and slow down,” argues Chicago’s Austan Goolsbee. 

• The Doves (4): Led by Trump's appointees Miran, Waller and Bowman, they see the labour market cracks (119k jobs in September) as the greater risk. 

• The Deciders (3): The swing votes – Powell, Lisa Cook and Philip Jefferson – have remained professionally vague, citing “incoming data” that hasn't actually arrived. 

The stakes 

If the Fed cuts on Wednesday, it is a “faith-based” easing, a bet that the missing data would have been soft if it had been released. 

If they hold, they risk a massive market repricing. With traders all-in on a cut (driven by Williams’ guidance), a “skip” would be interpreted as a policy error, potentially crushing risk assets that have rallied on the promise of cheaper liquidity. 

The decision is expected on Wednesday at 7pm UTC. 

The 'Not QE' liquidity fix

Analysts warn the Fed may announce "reserve management purchases" (RMP) alongside the cut, an insurance policy against a repeat of 2019’s repo market freeze.

BofA Global estimates the Fed could buy up to $45bn a month in short-term bills to replenish drained reserves. Crucially, the Fed will insist this is not Quantitative Easing (QE). While QE targets long-term bonds to stimulate the economy, RMP buys short-term bills solely to keep the financial plumbing from clogging.