The first signs of dissent are appearing among voting members of the Federal Open Market Committee, prompted by uncertainty over the economy's direction and evidenced by the number of recent requests to raise the discount rate. Last week's interest-rate hike was the first in the current economic cycle to be accompanied by a less-than-unanimous request to raise the discount rate.
Overall, 10 of the 12 Federal Reserve banks requested a 25 basis point increase to 3% in their discount rates at last week's FOMC meeting. The non-unanimous vote suggests some of the banks prefer a Fed pause, according to Gary Thayer, chief economist at A.G. Edwards. The two dissenters were the Federal Reserve Bank of Dallas, which so far is holding rates steady, and the Federal Reserve Bank of San Francisco, which did not submit a request to raise its discount rate in time for the FOMC meeting.
The dissent, however limited, could be short-lived. Next year's rotation of Federal Reserve presidents within the FOMC will bring in voting members who are slightly more in line with Fed Chairman Alan Greenspan than some of the current members, according to economists.
The incoming members are more hawkish and in line with Greenspan's view of the economy, according to John Herrmann, director of economic commentary at Cantor Viewpoint. "Santomera and Stern are close to Greenspan. The FOMC's tone will be one of willingness to raise rates and keep rates measured," he predicted.
