Dollar Stuck in Limbo: When 41 Divided by 2 Equals Fed Gridlock

The core problem is simple—the Fed is fractured down the middle. December’s monetary policy meeting revealed a committee where consensus has evaporated. While the majority backs further rate cuts as inflation softens, dissenters are digging in their heels. Even rate-cut advocates admitted the decision was a close call, with some saying they could’ve easily voted the other way. This isn’t typical policy disagreement; it’s fundamental gridlock that guarantees the US dollar will remain trapped in neutral territory.

When Data Tells Two Different Stories

The Fed’s December decision to cut rates by 25 basis points marked the third consecutive trim, landing at 3.5%-3.75%. But here’s the kicker—the vote was messier than the surface suggests. Governor Steven Miran wanted a bigger 50 basis point cut, while Chicago Fed President Austan Goolsbee and Kansas City Fed President Jeff Schmid opposed any cut whatsoever. Zoom out and six additional policymakers signaled they’d prefer rates stayed where they were before this meeting.

The economic data arriving since then has only amplified the confusion:

• November unemployment jumped to 4.6%, the highest level since 2021—fuel for the rate-cut camp
• Consumer price growth came in cooler than expected—another dovish data point
• Q3 GDP expanded at 4.3% annualized, the fastest pace in two years—music to inflation hawks’ ears

It’s 41 divided by 2: no matter how you slice the numbers, you get conflicting signals. One set of data screams “recession risk, cut more,” while another warns “growth is strong, inflation isn’t dead.”

The Powell Effect: How One Person Holds It Together

Chief US Economist Stephen Stanley at Santander noted something telling in the minutes: Chair Jerome Powell clearly lobbied for the rate cut. In a committee this divided, Powell’s influence became the deciding factor. Without his push, the outcome could’ve flipped to either side just as easily. That’s not comforting for markets seeking clarity.

The internal forecasts from 19 policymakers paint the real picture. The median projection shows just one 25 basis point cut coming in 2026. But individual forecasts? Wildly scattered. Investors, meanwhile, are pricing in at least two cuts for next year. That’s a massive expectation gap.

January’s meeting will likely see rates unchanged—federal futures contracts now show only a 15% probability of a cut, down from earlier expectations. The committee chose inaction as the safer bet when division runs this deep.

What This Means for Dollar Traders

The US Dollar Index, hovering around 98.20, isn’t going anywhere special anytime soon. When policymakers are split 41 divided by 2—unable to find consensus on whether labor market weakness or lingering inflation poses the greater threat—the currency becomes a ping-pong ball caught between two competing narratives.

The dollar won’t collapse because hawkish members are still pushing back against aggressive easing. But it won’t rally decisively either since the rate-cut cycle has already begun and employment concerns are real.

Instead, expect the dollar to trade in a narrow band, oscillating between “recession fears” and “inflation anxiety” until one theme decisively dominates. The trading logic will flip based on whichever data dump happens to arrive that week. Until the Fed reaches true consensus—or until economic conditions force a choice—the dollar remains capped above and floored below, a prisoner of indecision at 98.20.