The Fed's Internal "Dove vs. Hawk" Debate: 50 BPS Rate Cut VS No Cut!

The latest interest rate decision revealed that two committee members cast dissenting votes, highlighting internal divisions within the Fed. Among them, Stephen Miran, viewed as an "outsider," advocated for a significant 50 basis point rate cut, while Kansas City Fed President Jeffrey Schmid leaned toward maintaining the current interest rate.

Among the five candidates currently shortlisted by the Trump administration, two also have no prior Fed work experience. Should more "outsiders" join, the Fed's independence would face greater challenges, becoming the most significant risk exposure for global financial markets. Reflecting on the history of the Burns era last century, the collapse of trust in the Fed's independence often served as a prelude to a gold bull market.

This meeting was the first in Fed history convened without federal employment data. Due to a congressional budget impasse, the U.S. federal government has been in a shutdown since October 1st, forcing the suspension of numerous regular economic data releases. Although the U.S. government experienced a 35-day shutdown from December 2018 to January 2019, key economic data agencies like the Bureau of Labor Statistics continued operating at that time.

A report released by Bank of America on October 28 pointed out that there is still no progress in ending the U.S. government shutdown, and even if the government reopens, it could take months for data flows to normalize.

Recently, Fed Governor Milan, nominated by Trump, advocated for a 50 basis point rate cut, while Kansas City Fed President Schmid emphasized inflation risks and favored keeping rates unchanged. This dove-versus-hawk confrontation reflects, to some extent, the internal rift within the Fed.

Simultaneously, the Fed announced that it will formally stop reducing the size of its securities portfolio (Quantitative Tightening, QT) starting December 1st. This marks the phased end of the quantitative tightening cycle initiated in 2022 and signifies an important turning point in liquidity management policy. Data shows that during the QT period, by ceasing the reinvestment of maturing bonds, the Fed reduced its total assets from a post-pandemic peak of approximately $9 trillion to the current roughly $6.6 trillion.