Federal Open Market Committee statements typically sound unanimous, but the Committee’s internal debates rarely are. This column analyses historical meeting transcripts to show that policymakers hold systematically different beliefs about how monetary policy affects the economy, and these belief gaps – rather than data disputes – shape their preferred actions. The findings highlight how such disagreements are resolved, why dissent is rare, and how the Chair’s influence steers policy, offering clear parallels to current monetary challenges.
When the Federal Reserve changes interest rates, the decision is presented as if it were the product of a unified and carefully reasoned process. The public sees a single policy rate, a succinct statement, and perhaps a press conference that emphasises consensus. Yet recent inflation dynamics and the sharp rise in policy uncertainty have renewed debates about how these decisions are actually made. A growing body of research (e.g. Bordo and Istrefi 2018a, 2018b), shows that policymakers often hold deeply heterogeneous views about the economy, and that these internal differences matter for understanding monetary policy outcomes. These insights underscore a broader theme: central banks may speak with one voice externally, but their internal deliberations are rarely so simple.
In this column, we explain how those disagreements arise, how they are resolved, and why leadership matters so much in the process, based on a new paper that undertakes a large-scale data construction effort (Howes et al. 2025): reading every FOMC meeting transcript over several decades and systematically quantifying what policymakers said, what policies they preferred, and how they justified those preferences. Crucially, these discussions took place in an era when participants spoke candidly behind closed doors, with no expectation that their words would ever become public. It therefore offers a window into the hidden mechanics of monetary policymaking that remain highly relevant today, as disagreements among policymakers have become increasingly visible and the Federal Reserve approaches a major leadership transition.
The Federal Open Market Committee (FOMC) is responsible for setting US monetary policy, primarily by deciding the level of short-term interest rates. Its members include the Chair of the Federal Reserve, other members of the Board of Governors in Washington, and presidents of regional Federal Reserve Banks. All of them receive the same briefing materials before each meeting, including detailed forecasts of inflation, growth, and labour market conditions prepared by the Federal Reserve staff.
One might expect that, armed with the same data and the same mandate to promote stable prices and maximum employment, policymakers would usually reach similar conclusions. What the new evidence shows, however, is that even under these shared conditions, disagreement is widespread, persistent, and quantifiable. Even when economic forecasts are broadly shared, policymakers frequently enter meetings with very different views about the appropriate policy response. Some favour tightening policy, others prefer easing, and many argue for holding steady – often for reasons that go well beyond simple differences in the economic outlook. In many meetings, we see policymakers propose two, three, and sometimes more different policy decisions.
What makes this especially striking is that these disagreements are often invisible from the outside. Formal dissents – votes against the committee’s final decision – are rare. Yet the absence of dissent should not be mistaken for the absence of disagreement.
Figure 1 FOMC members systematically disagree about policy but rarely dissent
If disagreements are not mainly driven by different forecasts, what explains them? The newly constructed data allow this question to be answered directly rather than inferred indirectly from votes or public statements. The historical record points to a central factor: differences in beliefs about how the economy works.
In particular, policymakers have long disagreed about the trade-off between inflation and real economic activity. Some believe that changes in interest rates mainly affect inflation, with relatively modest effects on output and employment. Others believe the opposite: that monetary policy has powerful effects on real activity but only limited or delayed effects on inflation. These beliefs matter enormously. A policymaker who thinks higher interest rates will quickly and reliably reduce inflation may be eager to tighten policy at the first sign of price pressures. Another who believes the same action would mostly slow growth and raise unemployment may be far more cautious.
These differing views show up clearly in how policymakers justify their preferred actions. By coding and quantifying thousands of such justifications across meetings and individuals, the working paper shows that disagreement originates primarily in differences in perceived economic trade-offs, not in differences in stated objectives or access to information. Those who emphasise inflationary risks tend to argue for tighter policy. Those who focus on employment, growth, or slack in the economy tend to favour easier policy. Importantly, these are not just rhetorical differences; they reflect genuinely different mental models of the economy – different assumptions about how strongly policy transmits to prices versus output.
Figure 2 FOMC members tend to think monetary policy affects inflation more than output when the economy is “hot” and the opposite when there is economic slack
Such differences persist over time and across individuals. They are not easily reduced to simple labels like ‘hawk’ or ‘dove’. Once policymakers’ underlying beliefs about economic trade-offs are taken into account, traditional distinctions between hawkish and dovish behaviour become much less sharp. What looks like a difference in tolerance for inflation often turns out to be a difference in beliefs about how costly it would be, in terms of jobs and output, to bring inflation down.
Given how pervasive these disagreements are, a natural question arises: why does the FOMC so often present a united front?
The answer lies in the internal dynamics of the committee. While all members participate in discussions, not all voices carry equal weight when it comes time to decide. The Chair of the Federal Reserve plays a uniquely powerful role. Historically, the final policy decision has tracked the Chair’s preferred course of action very closely – much more closely than it tracks the preferences of any other individual member. The new evidence allows this influence to be quantified: the Chair’s preferred policy change passes through almost one-for-one into the final decision, while the preferences of other members translate only weakly into outcomes.
This dominance does not mean that debate is meaningless. Discussions shape how options are framed, how risks are assessed, and how policy is communicated. But when disagreements remain unresolved, the Chair’s view typically prevails.
Why, then, do other members so rarely dissent publicly? One reason is that dissent appears to be costly. Using the newly assembled data, we show that members who dissent in one meeting subsequently see a measurable decline in how much their preferred policies influence future committee decisions. Their views are less likely to be reflected in future decisions, even when controlling for the substance of their arguments. In effect, dissent can reduce a policymaker’s ability to shape outcomes going forward.
This implicit penalty helps explain why dissent is uncommon even when disagreements are large. It also helps explain why dissent rates vary across leadership regimes. Some Chairs have been more tolerant of open disagreement than others, while some have enforced consensus more tightly.
These dynamics have especially important implications for periods of leadership change. As Chair Powell’s term approaches its end, disagreements among FOMC members have become more public than at almost any point in recent decades, with policymakers openly expressing divergent views about inflation risks, labour market slack, and the appropriate path of interest rates. When a Chair’s term is nearing its end, or when it is widely understood that a new Chair will soon take office, the mechanisms that normally suppress dissent may weaken. Members may feel less constrained, disagreements may surface more openly, and the committee may appear more divided.
Leadership transitions also matter because Chairs are not interchangeable. A change at the top does not simply reshuffle personalities; it can alter how disagreements are handled, how much dissent is tolerated, and whose views ultimately shape policy. Each brings their own beliefs about the economy, their own approach to managing disagreement, and their own willingness to tolerate dissent. A new Chair who holds different views about inflation–output trade-offs, or who places different weight on consensus versus open debate, can meaningfully change how policy decisions are made – even if the formal mandate and institutional structure remain the same.
This helps explain why periods of heightened uncertainty about future leadership are often accompanied by more visible disagreement within the committee. The issue is not just who will set policy tomorrow, but how disagreements will be managed along the way.
Although the evidence discussed here comes from historical records, the lessons are not confined to the past. Disagreement within monetary policy committees is not a flaw; it is a natural consequence of uncertainty about the economy and the limits of economic knowledge. What matters is how those disagreements are processed and resolved.
Three lessons stand out. First, differences in beliefs – not just differences in data – are central to understanding monetary policy debates. Second, formal unity can mask substantial underlying disagreement. Third, leadership plays a decisive role, not only in setting policy, but in shaping how much disagreement is expressed and how costly it is to voice it.
As monetary policy confronts new challenges, from persistent inflation risks to shifting labour market dynamics, these institutional features will remain as important as any economic model. Understanding them helps make sense of why policy decisions sometimes seem contentious, why consensus can fray, and why the choice of leadership matters so much.
Source : VOXeu
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