New Federal Reserve Wire: Powell's "Second-to-Last" Rate-Setting Meeting, Fed Divisions Intensify

In the final stages of Powell’s leadership at the Federal Reserve, a rare internal split is emerging. At tonight’s policy meeting, as many as three Trump-nominated board members are expected to jointly dissent and support a rate cut—this would be the first time since 1988 that three board members have opposed the majority in the same policy meeting. This development indicates that incoming Chair Waller is taking over a committee with deepening divisions.

According to Nick Timiraos of the New York Fed Communications, in a Wall Street Journal article on the 17th, uncertainties triggered by the Iran conflict are expected to reinforce the majority’s stance to hold rates steady, but this also makes potential dissenting votes more notable. Since joining the Fed in September last year, Director Stephen Miran has supported rate cuts at every meeting; Christopher Waller dissented at the January meeting; and Michelle Bowman, in a TV interview two weeks ago, said the economy “may need policy rate support.” All three are Trump appointees, and Trump publicly called for an immediate rate cut last week.

The significance of this situation is not just in the vote count—more importantly, all three dissenters are appointed by a president who has publicly pressured the central bank, and their voting tendencies align closely with that president’s demands. Former Boston Fed President Eric Rosengren said, “If markets believe these directors are acting politically, that would be extremely dangerous.”

Vincent Reinhart, Chief Economist at BNY Investments and former senior Fed advisor, warned that as Trump may gain more nomination opportunities, investors’ expectations of the Fed are “becoming more dependent on political economy rather than macroeconomics.” According to CME FedWatch data, the market assigns a 99% probability that the Fed will keep rates in the 3.5%-3.75% range unchanged.

Structural Components of Dissent

The Fed’s interest rate policy is decided by a 12-member committee, divided into two groups: seven governors nominated by the president and based in Washington; and five regional Federal Reserve Bank presidents who rotate into voting positions, selected by local business and nonprofit boards, not political appointees.

Timiraos notes that dissenting votes from regional Fed presidents are common; dissent among governors has historically been rare and thus more impactful. This norm has recently been changing. Bowman became the first governor in 19 years to oppose a policy decision in 2024, voting for a smaller rate cut. Last summer, she and Waller jointly dissented in favor of a more accommodative policy—marking the first time since 1993 that two governors opposed the chair’s stance. In December, three votes dissented, but in opposite directions—two regional presidents opposed a rate cut, while Miran advocated for a larger cut. In the January meeting, Miran and Waller again dissented together.

Positions of the Three Dissenters

Timiraos states that each of the three has a different focus. Miran is the most outspoken, having never ceased dissenting since joining; he previously served as a senior economic advisor in the Trump administration. Waller, after dissenting in January, is considered a strong candidate to dissent again this week—after February’s unexpectedly weak jobs report, he believes it underscores that the labor market is approaching a “critical point.” Bowman, citing the same employment report, said the economy “may need rate support”; in her December rate forecast, she outlined a path of three rate cuts by 2026, more than most colleagues. Trump appointed Bowman last year as Vice Chair for Supervision at the Fed.

However, some former officials question whether current economic fundamentals support a rate cut. The Iran conflict has driven oil prices sharply higher, adding inflation sources amid unresolved tariff pressures; the Fed’s preferred inflation measure was already above 3% before the conflict. Jim Bullard, former St. Louis Fed President and current Dean of Purdue University’s Krannert School of Management, said:

“Voting dissent with core inflation above 3% and moving in the wrong direction signals a dismissive attitude toward inflation. I think that’s a hard position to justify.”

From Healthy Dissent to Political Divisions

Timiraos notes that several former officials are concerned about the evolution of this pattern. They distinguish between two types of dissent: occasional dissent based on individual judgment by governors, and coordinated voting by all Trump appointees aligning with the president’s expectations.

He cites Rosengren’s view that in countries where central banks have been subjected to political pressure, the public ultimately loses confidence that officials can take necessary measures to control inflation, and this loss of confidence makes inflation harder to tame. The deeper risk is that surface-level healthy dissent could evolve into partisan polarization similar to the Supreme Court—individuals may believe they are acting independently, but the public perceives only partisan bias. This would mark a profound shift for the Fed, as the policy trade-off between price stability and employment has historically not been divided along party lines.

In contrast, divisions in policy votes at institutions like the Bank of England are long-standing. The Fed has previously avoided such polarization not because officials always agree, but because broad consensus allows markets to focus on economic outlooks rather than which faction will dominate the next decision. Waller himself acknowledged last year the risks of split votes:

“If it really results in a 7-5 vote, then if one person’s stance changes, the entire rate path could change.”

Pre-Transition Strategies

Timiraos suggests that the potential dissent votes this week are unlikely to be seen as a direct challenge to Powell’s leadership—Powell’s term ends in May, and Waller is awaiting Senate confirmation. A more likely scenario is that both sides of the committee are using Powell’s transition period to set the tone for the upcoming policy handover. Hawkish officials may leverage this week’s quarterly projections to clearly signal resistance to rate cuts while inflation remains above 2%. Rosengren notes that “more attention will be paid to how this influences the new chair’s view of the committee’s dynamics.”

For regional Fed presidents, this week’s developments may also serve as a reminder that the political landscape of monetary policy has fundamentally changed. Reinhart states that if Trump gains more nomination power in the future, this political influence will continue to grow. His conclusion is succinct and powerful: “This should remind everyone that future expectations of the Fed will be more about political economy than macroeconomics.”