Fed divisions show Powell isn’t Trump’s biggest hurdle to a rate cut

Chair Jerome Powell is facing more internal resistance no matter what he chooses to do in December than to any other decision in his nearly eight-year tenure. That divide could persist well into next year, which means that simply changing the chair won’t guarantee more rate reductions.

Some Fed veterans worry that Trump, rather than accept that outcome, will take even more forceful steps to curb the central bank’s independence and secure lower rates.

For more than 30 years, Fed chairs have sought to craft the broadest possible consensus around rate decisions. Narrow majority votes never happen. There is now a real prospect of three or more dissenting votes in December whether Powell elects to pause or cut.

“What you’re seeing right now is that the process seems to be breaking apart, and we risk moving next year into an environment with a very deeply divided committee," said Krishna Guha of investment bank Evercore ISI.

"It feels like it’s a dress rehearsal for 2026," said Guha, a former New York Fed executive. The division hints at a possible future Fed “where decisions are made in ways they’ve never been made in living memory—by raw majority votes, and where it’s not a slam dunk the Trump-appointed chair will always be able to get his way."

A quarterback needs a team

The chair is the public face of the Fed but doesn’t decide interest rates alone. The role is more akin to that of a football quarterback, calling plays that an entire team must execute.

“The chair’s job is to get the committee to go along with a certain action," Fed governor Christopher Waller said Monday in London. If the chair proposes an action “that everybody thinks is nuts, it’s not going to happen."

Decisions must be approved by a majority of the 12-member Federal Open Market Committee. That body includes seven Fed governors who are appointed by the U.S. president. The other five members are the president of the New York Fed plus four of the 11 Fed bank presidents, who vote on a rotating basis. All 19 officials participate in the policy meetings.

The Fed presidents provide an apolitical buffer because they aren’t political appointees and often have no partisan background. They are selected by local business and nonprofit executives subject to approval by the Fed governors.

In September, a narrow majority of the 19 officials expected to cut rates at the last three meetings this year. The Fed delivered quarter-point cuts in September and October, putting their rate target range at 3.75% to 4%. A sizable contingent, mostly reserve bank presidents, made clear their opposition to a third cut in December. With key data blacked out by the government shutdown, officials lacked the usual information that often reconciles differences.

Powell signaled after the October meeting that another cut wasn’t a done deal. Public remarks by colleagues quickly reinforced the point. Markets began treating it as a tossup. On Friday, markets swung back to anticipating a cut following supportive remarks by New York Fed President John Williams, a Powell ally.

Officials are divided largely because Trump’s policies on trade and immigration appear to be both weakening job growth and pushing up prices. It is hard for the Fed to address both problems simultaneously.

After cutting rates twice to address risks to the job market, some officials want more evidence that conditions are worsening or inflation is improving before cutting further. Some fear inflation will run closer to 3% than the Fed’s 2% goal because they expect solid economic activity next year.

If the Fed cuts in December, it largely will be because Powell, building on eight years of consensus building, will persuade some colleagues to swallow their reservations.

Multiple dissents, for or against a cut, are likely. If such outcomes become the norm, they would break from a culture of consensus that took root after 1994, when Chairman Alan Greenspan was caught off-guard by colleagues who wanted to raise rates faster than he did.

“After that, I think he said, ‘I don’t want to be surprised again,’" said Donald Kohn, then an adviser to Greenspan who went on to serve as a Fed governor. Greenspan responded by building consensus more carefully in between meetings, and his successors continued the practice.

There have been only five meetings with three dissents since 1993, most recently in 2019. There hasn’t been a Fed meeting with four dissents since 1992.

Together with any reluctant votes from those who decline to formally break ranks, stiff opposition to a cut would show how replacing Powell won’t make it any easier to reduce rates next year, unless the economy is deteriorating.

How would Trump respond?

Fed veterans fear that if Trump or a new chair concludes simply replacing Powell won’t satisfy low-rate demands, they would take a more bare-knuckled approach.

For example, once Trump appointees form a majority of the Fed’s seven-person board, they could dismiss any of the 12 Fed presidents for any reason.

Trump is already seeking to remove Fed governor Lisa Cook, citing alleged financial wrongdoing. Cook has said the allegations are baseless and has successfully, for now, challenged her removal. The Supreme Court is set to consider in January whether she can remain on the job. A ruling in Trump’s favor would make it easier to replace other governors.

A new chair could also gut the Fed’s core economic staff, which is devoted to a rigorous process of apolitical and independent forecasting.

Any such moves could echo how Trump appointees have challenged the nonpartisan culture at the Justice Department and the Federal Bureau of Investigation.

“I love this institution, and I worry about lasting damage on the staff level, or firing presidents because you disagree with them," Kohn said.

On Wednesday, Trump publicly pressed Treasury Secretary Scott Bessent to “work on" Powell to lower rates and teased that he would blame Bessent if the Fed didn’t cut. “The only thing Scott’s blowing it on is the Fed," said Trump, who appointed Powell in 2018.

As Trump has dialed up his attacks on the Fed, administration officials and allies have argued it is the Fed, not Trump, who is political, a view that would justify a wholesale housecleaning. Bessent, reversing an earlier promise not to comment on future rate decisions, has issued more pointed rate-setting recommendations in recent television interviews.

Several leading candidates to replace Powell have suggested the Fed has become politicized. Former Fed governor Kevin Warsh this summer said the Fed needed “regime change," which “means new sets of policies…and also means new personnel."

Another candidate, Kevin Hassett, director of Trump’s National Economic Council who spent five years as a staff economist at the Fed, told the Economic Club of Washington this month that he had “seen what’s good and bad about the way the Fed people think—and there’s a lot of bad."

Stephen Miran, who became a Fed governor in September and is on leave as a White House adviser, co-wrote a paper last year saying more dissent would help combat “pernicious groupthink." Miran has dissented in favor of larger rate cuts at both of his meetings.

Waller, who has dissented at two meetings this year and is in the running to follow Powell, has argued that some dissent is healthy, but the Fed avoids razor-thin votes because a broad consensus delivers more clear and consistent policymaking, he said.

“If it gets really down to 7-5 votes, then one person switches [at] the next meeting, and the whole trajectory changes," Waller said this week.

Dissents should occur during “difficult moments like the current one, where the Fed’s two goals are in tension," said Kohn. But it would be a serious worry, he said, if dissents began to fall consistently along partisan lines because that would suggest politics, and not economics, were driving policy decisions.

Write to Nick Timiraos at Nick.Timiraos@wsj.com