FILE PHOTO: The exterior of the Marriner S. Eccles Federal Reserve Board Building is seen in Washington, D.C., U.S., June 14, 2022. REUTERS/Sarah Silbiger/File Photo

By Howard Schneider

WASHINGTON, Dec 1 (Reuters) - The U.S. Federal Reserve, sometimes criticized for being too consensus-driven, may see a run of divided votes on interest rates that could weaken its policy message and intensify doubts about its independence from political influence.

A divide among Fed policymakers has emerged since the summer, as progress on inflation was stalling just as job creation was losing steam, putting the U.S. central bank's 2% inflation and maximum employment goals in direct conflict.

The recent government shutdown complicated things further by delaying data that might clarify the economy's direction, leaving policymakers ahead of their December 9-10 meeting with fairly fixed and deeply split positions over whether further rate cuts are needed to help the job market or too risky given the still-elevated level of inflation.

This month's meeting seems likely to produce several dissents regardless of the outcome. As many as five of the 12 voting policymakers on the central bank's rate-setting Federal Open Market Committee have voiced opposition to or skepticism about cutting rates further, while a core of three members of the Washington-based Board of Governors wants rates to fall.

"You might see the least 'groupthink' you've seen ... in a long time," Fed Governor Christopher Waller said last month amid speculation the December meeting could produce three or more dissents if the Fed approves another quarter-percentage-point cut, as expected by financial markets. The FOMC has not had three or more dissents at a meeting since 2019, and that has happened just nine times since 1990.

Fed Chair Jerome Powell has not steered expectations about the December meeting one way or the other. Comments, however, by New York Fed President John Williams, the vice chair of the FOMC and a permanent voting member of its policy committee, leaned towards a cut when he said late last month that there was room to lower borrowing costs "in the near term."

Analysts see a reduction in borrowing costs as the likely path toward compromise, if coupled with language in the FOMC's policy statement and from Powell in his post-meeting press conference that a pause in monetary easing was then likely.

In their final comments before the communications "blackout" for the upcoming meeting, rate-cut skeptics said they were keeping an open mind, while Waller, who has pushed for reductions in borrowing costs since sensing a job market slowdown last summer, agreed that cuts beyond December would hinge on the large amount of data about to arrive as statistical agencies fully catch up from the record 43-day U.S. government shutdown.

"We'll see ... what the statement is. Do I agree with it or not agree with it?" Chicago Fed President Austan Goolsbee said in comments to reporters recently. "I do think there is some value to the Powell approach. Can we build a consensus that everyone or a lot of people can agree with?"

DISAGREEING WHILE MAINTAINING INFLUENCE

Richmond Fed President Thomas Barkin said last month that the focus on who dissents and who doesn't can miss a critical point: Dissenters might surrender influence.

"Starting with (former Fed Chair Ben) Bernanke, there's been this theory that if you can clearly articulate the path forward, then markets can do a lot of work for you, and that presumably a more unified committee helps create confidence," Barkin said.

"I've not always agreed in the meeting, but when I've voted I have voted with the chair. I've always had the objective just to have influence."

Waller, on the short list of potential nominees by President Donald Trump to replace Powell as Fed chief next year, acknowledged the risks of persistently divided votes.

"If it gets really down to seven-to-five ... then one person switches and the whole trajectory changes," he said. "That's kind of a danger with these kind of razor-thin, one-vote things. It doesn't give people confidence."

Recent research by Chicago Fed senior economist Alessandro Villa and others showed the dynamics in action. Market shifts around Fed policymaker speeches were more significant when officials' remarks were aligned with the chair of the FOMC.

"The effective management of expectations requires some degree of alignment between committee members' public remarks," the research concluded. "Speeches that echo the Fed chair's press conference after the Federal Open Market Committee meeting reinforce monetary transmission, while dissonant voices create noise that weakens it."

"A 7-5 split would be a mess for rates markets trying to price the appropriate path of rates over the next 12 to 18 months. And it would be a mess for risk assets looking for some degree of certainty around Fed strategy," said Ed Al-Hussainy, fixed income portfolio manager at Columbia Threadneedle.

NEXT YEAR ROOTED IN 'POLITICAL ECONOMY'

Among its major peers the Fed is somewhere in the middle when it comes to split policy decisions.

The European Central Bank is an even more consensus-driven body, with at most one or two opposing voices on the 26-member Governing Council and heated debate a rarity during its policy decisions.

Split votes, however, are the norm at the Bank of England, where policymakers are individually accountable to a parliament whose members have criticized "groupthink" when they perceived too much consensus. The BoE's last 9-0 vote on interest rates occurred in September 2021, and its committee has split 5-4 on four occasions since the start of 2024.

Fed dissents are fairly common, with at least one "no" vote arising at about 20% of the meetings Powell has chaired since 2018, at nearly half the meetings chaired by his predecessor, Janet Yellen, and at more than 60% of Bernanke's meetings, according to a St. Louis Fed database.

But most of those decisions involved a single dissent, typically by one of the locally-hired Fed regional bank presidents who rotate as FOMC voters, and less frequently by the Fed governors, who are presidential appointees. That pattern has been changing in the Trump era, with several of the president's appointees, Waller included, pushing for lower rates.

With Powell's tenure as Fed chief due to end in May and Trump pushing for more influence at the central bank, some observers see the seeds of a deeper conflict if a persistent policy division emerges between the regional Fed presidents and the seven governors in Washington.

The policy outlook for 2026 will be rooted in "political economy - when does the White House get a majority on the board?" said Vincent Reinhart, chief economist at BNY Investments and a former head of the Fed's monetary affairs division. "If there's a solid string of bank presidents dissenting ... shouldn't the board be doing something about the selection of bank presidents, and shouldn't the Congress be doing something about having non-presidentially-appointed, Senate-confirmed officials vote on monetary policy?"

(Reporting by Howard Schneider; additional reporting by Ann Saphir, Balazs Koranyi and David Milliken; editing by Dan Burns and Paul Simao)