Powell Retains Federal Reserve Board Seat and Voting Rights
Jerome Powell recently concluded his term as Federal Reserve Chairman but continues to serve as a member of the Federal Reserve Board of Governors. This allows him to participate fully in the Federal Open Market Committee (FOMC) deliberations, retaining one vote equal in weight to that of the current Chair, Christopher Waller. As the FOMC convenes on September 16, market participants are closely monitoring how these voting dynamics will influence upcoming monetary policy decisions.
Chair Waller Attributes Inflation to Institutional Policies, Not Individuals
In his keynote address at the Jackson Hole central banking symposium late last month, Chair Waller candidly placed responsibility for elevated inflation over the past 65 months on the Federal Reserve as an institution rather than on any single person. His comments suggest criticism of policies enacted during Powell’s chairmanship, highlighting that inflation control remained elusive. Notably, Powell still holds a critical vote on the FOMC, underscoring his ongoing influence despite stepping down from the chair role.
Market Expectations for September Rate Hike Increase
At the July FOMC meeting, nine members voted to hold interest rates steady while three, including both Powell and Waller, supported maintaining current rates without a change. However, Waller’s recent remarks have shifted market sentiment, with futures-based models indicating the probability of a rate hike in September rising from around 35% to approximately 60%. This shift is reflected in stronger short-term Treasury yields and a firmer US dollar. Nonetheless, some market prediction platforms like Kalshi remain more cautious, placing the odds closer to 47%.
Incoming Economic Data Will Drive Policy Votes
A minimum of seven affirmative votes is required for the FOMC to raise rates. Aside from three board members who strongly supported hikes in July, other members’ positions remain uncertain. Board member Lisa Cook has signaled readiness to tackle inflation but is currently involved in a qualification lawsuit. Meanwhile, Christopher Waller and Anna Paulson have expressed a more data-dependent stance, awaiting further economic indicators.
Key reports scheduled around the Fed’s blackout period include the September 4 August employment report, followed by producer and consumer price indexes, as well as import and export price data. The Fed’s preferred inflation gauge, the Personal Consumption Expenditures (PCE) index, remains elevated. Waller’s speeches have highlighted PCE inflation as central to policy deliberations. Additionally, the August PCE data will be released on September 30, two weeks after the FOMC meeting.
Geopolitical Tensions Amplify Inflationary Pressure via Energy Costs
Rising oil prices, spurred by tensions in the Persian Gulf and incidents near Iran, have pushed crude prices up by more than 20% over six months. Chair Waller has emphasized the difficulty of monetary policy in countering supply-side shocks like these. While interest rate hikes may dampen demand indirectly, they do not address the root cause of higher energy costs, complicating inflation control efforts.
Fed Faces Complex Tradeoffs Amid Persistent Inflation
Economists note inflation stems from a confluence of factors beyond monetary policy alone. The challenge for the Federal Reserve lies in calibrating policy to balance economic growth risks, supply chain disruptions, and geopolitical uncertainties. Despite no longer serving as Chair, Powell's voting role maintains his influence over the Fed’s approach. With pivotal economic releases imminent and divergent member views, the September FOMC outcome remains unpredictable, leaving markets in a state of cautious anticipation.