Fed Officials More Split Over Interest Rate Path Than Before

(Bloomberg News/TNS) — Federal Reserve officials are not as unified as they used to be about where U.S. interest rates will go.

An analysis of the economic projections policymakers submit quarterly on the future path for interest rates, known commonly as the dot plot, shows that disagreement fell during the 2010s and was “nearly nonexistent early in the pandemic,” according to an economic commentary published on Monday by the San Francisco Fed.

“However, it has been increasing since then and rose above its average level in the first two quarters of 2023,” San Francisco Fed researchers Andrew Foerster and Zinnia Martinez wrote.

The shift could lead to more intense debate and potentially an increase in dissents as policymakers determine when to end their rate hikes and eventually, when to start cutting borrowing costs.

Officials have been mostly on the same page over the past year and a half as they lifted their benchmark rate from near zero to a target range of 5.25% to 5.5%, the highest level in 22 years. Fed Chair Jerome Powell has seen only 13 dissents since his tenure started in February 2018, including two since officials started hiking rates in March 2022.

But policymakers are now disagreeing more about where rates should go from here, according to the researchers, who also looked at officials’ expectations for gross domestic product, the unemployment rate and inflation.

That disagreement is especially linked to differing views over the future path for inflation. Differences in where officials see growth or the unemployment rate headed are “not statistically related to policy disagreement.”

However, that only explains part of the divide, the researchers said.

“Disagreement about the economic outlook accounts for only about a third of the disagreement about policy, suggesting that factors unrelated to the outlook such as policy preferences, which are beyond the scope of this letter, play a larger role,” the paper noted.