For Jerome Powell's final meeting as Fed Chair, Wednesday evening's decision was marked by four dissenting votes, a first since 1992. Three participants  disagreed with maintaining the dovish bias in the statement, while once again Stephen Miran voted for a rate cut.

This situation echoes a critique that has been emerging for several months now, regarding the Fed's inner workings: "groupthink." This is the idea that Fed officials tend to consistently rally around the consensus view, whereas a greater diversity of opinions would improve collective decision-making and help avoid monetary policy errors.

In this critique, one of the most frequently cited examples is 2022, when the Fed labeled inflation as "transitory," delaying its reaction and letting inflation  reach a 40-year high. "Everyone had the same model, which was the Phillips curve," Jerome Powell later admitted.

"Family fight"

This criticism was echoed by Kevin Warsh during his Senate confirmation hearing last week. "I tend to prefer more informal meetings, where people don't show up with pre-prepared speeches," Warsh stated. "If the central bank has these constructive internal debates (Kevin Warsh referred to them as a "family fight"), I think it will make better decisions, and if it makes mistakes, it will correct them more quickly."

A Fed that exposes its internal divisions more openly would effectively mean the end of forward guidance, which appears to be one of Kevin Warsh's objectives. "I don't believe it is my place to reveal to you what a future decision might be," he told senators on the Banking Committee last week.

However, forward guidance is a powerful tool. "The predictability of the Fed Chair's statements was not limited to ensuring the institution's cohesion or guiding markets in their individual decisions. It mitigated volatility regarding the Fed's next moves, thereby helping to keep interest rates low," Nick Timiraos of the Wall Street Journal summarizes. "A Fed whose signals are harder to interpret risks leading to a slight increase in borrowing costs for individuals, businesses and the government itself."

Context makes decisions less consensual

The Fed seems to have already entered a new regime where consensus is no longer the norm. Between Jerome Powell taking office (February 2018) and the end of 2023, there were only 7 dissenting votes in 48 meetings. Since 2024, there have been 9 dissenting votes in 19 meetings.

Ultimately, the high level of dissenting votes is primarily the result of a very specific situation for the US economy. For nearly a year, various shocks - tariffs, declining immigration, surging energy prices - have created risks for both sides of the Fed's mandate (price stability and maximum employment).

In response, some FOMC members are more concerned about inflation remaining above target for five years. Others, however, fear risks to growth, as the labor market has shown signs of slowing in recent months. Both sides have credible arguments to put forward.

The context makes decisions less consensual, but that does not necessarily mean a different way of operating. "Every new Fed Chair finds themselves in the same situation: you have 18 colleagues on the FOMC, 11 of whom vote each year, and your role is to build consensus, to engage with them, to understand them, to grasp their point of view, and to bring them together to reach a consensus and move forward," Jerome Powell commented last night.

As former St. Louis Fed President James Bullard summarized: "It looks like the Chair always gets what he wants, but that's because he maneuvers to stay at the center of the committee."