There has never been a tie vote on the rate-setting Federal Open Market Committee, but the Federal Reserve has also never been under attack like it is now.
That’s after President Donald Trump took the unprecedented step Monday to fire Fed Governor Lisa Cook, who has sued to block the move. A judge heard arguments in the case on Friday but didn’t issue a ruling.
Meanwhile, the composition of the Fed is changing, tilting the central bank more dovish. Trump has named Stephen Miran to fill a vacancy on the board left by Adriana Kugler, who left before her term was due to expire in January.
Miran would join Trump-appointed governors Christopher Waller and Michelle Bowman, who cast dissenting votes at the last Fed meeting as they sought to lower rates. And Jerome Powell’s term as Fed chairman expires in May, though it’s uncertain if he plans to remain on the board of governors until his term in that seat expires in 2028.
If Trump is able to replace Cook, that would shift the balance even more toward easing—and potentially clear the way for a reshuffle of the Fed’s regional bank presidents, who take turns serving on the FOMC. But even if the Fed cuts rates in September like Trump wants, it’s unlikely to quiet the president as he has said rates should be more than 300 basis points lower than they are now.
It sets up a possible new era of more contentious meetings at the Fed, which typically has been driven by consensus with even one dissenting vote being rare. Votes may be closer. And given that the FOMC has an even number of 12 members, that raises the question of what would happen in a tie vote.
It’s not a far-fetched possibility. According to a note last month from Christopher Hodge, chief U.S. economist at Natixis CIB Americas, there have been three occasions when a decision on the FOMC passed by a one-vote majority, though the last time it occurred was in 1973.
The FOMC’s rules and procedures don’t discuss a tie scenario, and the Fed didn’t provide a comment.
Robert Eisenbeis, who previously served as director of research at the Atlanta Fed, told Fortune that in the event of a tie vote, the federal funds rate would stay the same.
There is no override provision, meaning the chair doesn’t have the ability to force a different decision, he explained via email. It’s also not clear if policymakers would take another vote during that same meeting or wait until the next scheduled meeting to vote.
“There is no precedent here,” Eisenbeis said. “I would presume there would be the option for a revote, but if not, then no change in the funds rate. If there is no change in the rate, then the next meeting is where another review and vote would take place.”
Hodge, who previously served as principal economist at the New York Fed, told Fortune via email that the question of a tie hasn’t been covered in any official public documents explicitly.
Still, the chair has significant authority in guiding meetings and decisions, he said, noting that the FOMC is also a self-governing committee that has the ability to alter its rules.
“In the absence of an explicit tie-breaking rule, the chair is generally understood to have the ability to cast a deciding vote or guide the committee toward resolution, as is common in other deliberative bodies with a presiding officer,” Hodge explained. “This is not made explicit in any document I have seen and is more of a custom than a rule.”
Eisenbeis believes Alan Greenspan always voted last when he served as Fed chairman to prevent a tie vote on the FOMC.
As the Fed faces more turnover, there is plenty of fodder for debate, potentially leading to more split votes. Inflation has edged further above the Fed’s 2% target amid Trump’s tariffs, but it’s unclear if the uptick will be short-lived or more prolonged. Meanwhile, the job market is cooling off, though there’s disagreement on Wall Street over whether that’s a demand issue or a supply issue caused by Trump’s immigration crackdown.
Similar crosscurrents produced a 4-4-1 deadlock at the Bank of England earlier this month, as four policymakers voted to keep rates steady, four voted to cut by a quarter point, and one voted to cut by a half point.
That prompted the bank’s Monetary Policy Committee to hold a decisive revote for the first time since it was created in 1997. The subsequent 5-4 decision lowered rates a quarter point to 4% from 4.25%.
The FOMC’s next meeting is on Sept. 16-17, and exactly who will show up remains in doubt. Even if Cook wins in court, it’s not guaranteed that she would be allowed to return to her duties immediately while the government further appeals the case, JPMorgan said in a note Friday. It’s also not certain if Miran will be confirmed by the Senate in time for the next meeting.
And even though Powell has opened the door to a rate cut next month, other policymakers remain more hawkish, while further weakness in the labor market could make some doves even more dovish.
In a speech Thursday, Waller said he wouldn’t back a cut of more than a quarter point next month, but that could change if new jobs data come in worse.
“While there are signs of a weakening labor market, I worry that conditions could deteriorate further and quite rapidly, and I think it is important that the FOMC not wait until such a deterioration is under way and risk falling behind the curve in setting appropriate monetary policy,” he said.
Politics8 years ago