On The Fed’s Policy Committee, Dissenters Pay A Price

If anyone on the Federal Reserve’s policy committee votes against the majority at the Fed’s meeting on Wednesday, they may regret it down the line.

That’s according to a research paper published last week by the National Bureau of Economic Research. The team of researchers at the University of California, Berkeley, the Fed, the NBER, and Hong Kong University of Science and Technology found that members who vote against the majority are less likely to get their way at subsequent meetings.

A majority of Fed officials voted to lower the rate by a quarter-point at its three most recent meetings, though, unusually, there were dissenting votes at all of them. Members who wanted to keep rates even and those who wanted steeper cuts voted against the action.

Given such varying viewpoints, researchers wondered why dissenting votes aren’t cast more often—after all, most FOMC votes are unanimous.

To find out, researchers pored over transcripts of Fed meetings and voting records. The chair was highly influential in steering the majority opinion and establishing unanimity, the researchers found. They also found that every time a member went against that consensus, their preferred interest rate policy was about one-third less likely to be adopted at a future meeting. In other words, they may be being punished for breaking the committee’s consensus.

The researchers considered another possible interpretation: “FOMC members only dissent when they realize the battle is lost and their viewpoint will not carry the day in future meetings,” they wrote.

“Whatever the reason, what is clear is that dissent not only does not move subsequent committee decisions toward the individual’s policy preference, but comes at the added cost of future loss of influence,” they wrote.

Consensus has been less than rock-solid lately. In recent speeches, members of the FOMC have laid out sharply divergent visions of the economy, with some viewing high inflation as a greater threat and others seeing the hiring slowdown as a red flag that a surge in joblessness could be on the way.

The federal funds rate affects borrowing costs on all kinds of loans, and is the Fed’s main tool for pursuing its dual mandate from Congress to keep inflation low and employment high. The FOMC is widely expected to keep the rate steady on Wednesday to gauge how the economy has responded to its recent moves.