The Federal Reserve is reaching a pivotal moment in its fight against inflation. After more than a year of solid agreement that higher interest rates were needed, differences among policymakers have started to deepen as they weigh when to stop hiking and how long to keep rates elevated.

The participants on the Federal Open Market Committee are clustered into three main groups. The hawks are ready to tighten policy and are on the sharp lookout for inflation. The doves are inclined toward an easy policy that favors job creation. And finally, the centrists are seeking a middle ground.

The increasing split between them is clouding the outlook for rates and threatens the unity Fed Chair Jerome Powell has maintained during his tenure, which in turn could undermine the central bank’s credibility on inflation and communications with investors and the public.

Here’s a breakdown of policymakers’ views — based on Bloomberg reporting and a survey of economists — and an assessment of their influence on the policy debate:

The Hawks

Who: Fed Governor Christopher Waller, and his longtime associate, St. Louis Fed President James Bullard, who is retiring, have led the push for more forceful actions to cool inflation since early 2021, joined by another Fed veteran, Loretta Mester of the Cleveland Fed.

Also in the hawkish camp: Governor Michelle Bowman, Lorie Logan of the Dallas Fed, Thomas Barkin of Richmond and Neel Kashkari of Minneapolis.

What: The Fed hawks argue raising interest rates 5 percentage points since March 2022 hasn’t been enough to restore price stability, and have signaled they’re willing to consider raising rates more this year than the two additional quarter-point hikes that Fed officials expected when they submitted updated forecasts in June. Some wanted to raise rates last month but reluctantly went along with a one-meeting pause.

Why: While the annual inflation rate measured by the consumer price index has plunged to 3% from 9.1% in a year, the hawks see the glass half empty on price pressures and are instead focused on the core gauge excluding food and energy at 4.8%. Goods inflation has eased as supply disruptions have dissipated, but services prices seem buoyed by a too-tight labor market with elevated wages, in their view.

They cite resilient growth along with robust job gains as signs there is not enough restraint. They don’t believe there are long lags in rates affecting the economy because financial conditions anticipate the interest-rate path.

They also worry that a long period of elevated inflation will permanently raise the public’s expectation of price growth similar to the 1970s experience, making it more painful to bring down later. 

Key to Watch: Logan, a former New York Fed executive, is among the most likely to dissent from a future pause. She’s skeptical that past rate hikes are going to have much more effect because financial conditions anticipate future rate moves. She’s also highlighted the interest-rate-sensitive housing sector as having bottomed out, with prices trending up. “A rebound in housing would pose an upside risk to inflation down the road,” she warned in July.

The Centrists

Who: The centrists are led by Powell, who represents the entire committee and has sought consensus among the sometimes warring sides.

The FOMC leadership, including Philip Jefferson, nominated to be vice chair, and New York Fed President John Williams, also back Powell’s approach. Governors haven’t dissented on monetary policy since 2005 and Michael Barr, vice chair for supervision, is seen as moderate as well.

What: Their case is it’s necessary for the central bank to continue hiking – a nod to the hawks – but that the pace of hikes should be slow as they near the end of the cycle – a nod to the doves.

The centrists agree with the hawks on inflation: While Powell initially called inflation “transitory” in 2021, he moved aggressively to raise rates and has continued to highlight the need to do more. They also agree the labor market will need to weaken to contain price pressures, but they don’t want to go too far and tip the economy into a recession.

Why: They aren’t expecting further quick improvement in prices. While goods inflation has eased and housing seems likely to progress further, services inflation, influenced by a hot labor market, is likely to be sticky.

“To get inflation all the way to 2%, it will take not only getting the demand for labor further down but some increase in unemployment,” Williams said in an interview published July 11. Still, “I don’t have a recession in my forecast.”

Key to Watch: Jefferson has already assumed the role as a key Powell deputy. It was his speech just prior to the June meeting that made clear a pause in rates was certain. He’s echoed Powell and is likely to play a key role signaling further policy shifts. “He is taking to heart his new role as Powell’s wingman,” said Stephen Stanley, chief US economist at Santander US Capital Markets.

The Doves

Who: Atlanta Fed President Raphael Bostic and Chicago Fed President Austan Goolsbee have been leading calls for patience as Fed officials assess whether and to what extent further rate hikes are needed to cool the economy.

Also seen in the dovish camp are Philadelphia Fed President Patrick Harker, Governor Lisa Cook, Boston Fed President Susan Collins and San Francisco Fed President Mary Daly.

What: The doves acquiesced in the most aggressive rate hikes in four decades but now see the risks to the economy as more balanced, and worry further increases could unnecessarily damage the labor market.

Why: Inflation is decelerating and the doves pin the cause of price pressures over the past two years mostly on supply-chain difficulties during the pandemic and disruptions caused by rapid economic changes during that period, rather than excessive demand. They also see signs of the US economy moderating and argue more slowing is ahead because monetary policy works with “long and variable lags,” which Bostic has estimated can take 18 months to two years.

The doves further argue monetary policy is becoming tighter as real interest rates, or rates adjusted for inflation, increase with disinflation – a “passive tightening,” as Bostic calls it. They largely reject the focus of many hawks on a hot labor market causing rising wages and inflation, and emphasize the desirability of a soft landing.

Key to Watch: Goolsbee, head of President Barack Obama’s Council of Economic Advisers, is seen by Wall Street as influential and is among the most plain-speaking of the Fed presidents, avoiding typical jargon of doctoral economists. He’s skeptical of colleagues’ concerns about an overheating economy and labor market. “The pandemic was a weird business cycle,” Goolsbee said June 30. “The normal rules don’t have to apply.”

This article was provided by Bloomberg News.