Has the "Fed's Mouthpiece" Spotted Clues?

Renowned journalist Nick Timiraos, often called the "new Fedwire," wrote in his latest piece on Monday (local time) that Fed Chair Jerome Powell's allies have paved the way for him, suggesting he could push the currently divided Federal Open Market Committee (FOMC) to pass an interest rate cut decision at the upcoming meeting, although this might draw several dissenting votes.

Timiraos pointed out that the rare level of internal division within the Fed means that the final decision-making power will be more concentrated in Powell alone than usual.

Timiraos mentioned that to resolve this sharp internal disagreement, Powell might be weighing two options, each with its drawbacks:

The first option is to cut rates as the market expects and use a carefully negotiated post-meeting statement to signal a higher bar for subsequent rate cuts. This "cut then pause" strategy would mirror the operation from late 2019—when Powell also faced strong opposition to rate cuts from three colleagues.

While this move might draw objections from officials opposed to cutting rates, if recent US economic conditions persist, building consensus to signal "no need for further rate cuts" could end the public squabbling among officials—a veritable "soap opera."

The other option is to keep rates unchanged and reassess (whether to cut) after the January release of employment and inflation data, which was delayed due to the federal government shutdown. However, this could prolong the public divisions within the Fed for another seven weeks, with no guarantee that the newly released data would resolve the fundamental disagreements.

Timiraos noted that this internal Fed division actually reflects contradictory trends in the US economy, the likes of which haven't been seen to this degree at any point in Powell's nearly eight-year tenure: job growth has stalled, yet inflation remains stubbornly high—hinting at what economists call stagflation.