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

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Source: Wall Street Journal

Nick Timiraos believes that three Fed governors nominated by Trump (Miran, Waller, Bowman) are likely to jointly cast dissenting votes supporting a rate cut, breaking a record set since 1988. Despite escalating tensions with Iran increasing inflation risks, these three governors deliberately diverge from Powell’s majority stance, aligning with Trump’s pressure. Acting Chair Waller may take over a deeply fractured committee. Data shows a 99% probability that the Fed will keep interest rates unchanged.

In Powell’s final phase leading the Federal Reserve, a rare internal split is emerging. Tonight’s policy meeting may see as many as three Trump-nominated governors voting against the majority, supporting a rate cut—this would be the first time since 1988 that three governors oppose the majority in the same policy meeting. This signals that Waller is about to take over a committee with deepening divisions.

According to Nick Timiraos of “The New Federal Reserve News Agency” in a Wall Street Journal article on the 17th, the uncertainty caused by the Iran conflict is expected to strengthen the majority’s stance to keep rates steady, but it also makes potential dissenting votes more notable. Since joining the Fed last September, Governor Miran has supported rate cuts at every meeting; Waller cast a dissenting vote at the January meeting; 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.

This situation’s significance is not just in the vote count—more importantly, all three governors were appointed by a president who openly pressures the central bank, and their voting tendencies are highly aligned with that president’s demands. Former Boston Fed President Eric Rosengren warned that if markets believe these governors are acting politically, “it would be an extremely dangerous situation.”

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 will “become more dependent on political economy rather than macroeconomics.” According to CME FedWatch data, the market sees a 99% chance that the Fed will keep rates in the 3.5%-3.75% range unchanged.

Structural component of dissent among governors

The Fed’s interest rate policy is decided by a 12-member committee, divided into two groups: seven governors nominated by the president, based at the Washington headquarters; and five seats rotated among regional Fed presidents, chosen by boards of local business and nonprofit leaders, not political appointees.

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

Positions of the three potential dissenters

Timiraos states that each of the three governors has different focuses. Miran is the most outspoken, having never supported the consensus 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—February’s unexpectedly weak jobs report suggested that the labor market is approaching a “critical point,” he believes. Bowman cited the same employment report, saying 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 as Vice Chair for Bank Supervision last year.

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 indicator was already above 3% before the conflict. Jim Bullard, former St. Louis Fed President and current Dean of Purdue University’s Business School, said:

“Voting dissent with core inflation above 3% and moving in the wrong direction signals a disregard for inflation. I find that a hard position to justify.”

From healthy dissent to political rifts

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, and coordinated votes by all Trump-nominated members aligning with the president’s expectations.

He cites Rosengren’s view that in countries where the central bank has been subjected to political pressure, the public ultimately loses confidence that officials can take necessary measures to control inflation, and that loss of confidence makes inflation harder to manage. The deeper risk is that healthy dissent could evolve into partisan polarization similar to the Supreme Court—individuals may believe they are acting independently, but the public only sees 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, institutions like the Bank of England are accustomed to voting splits. The Fed has previously avoided this scenario not because officials always agree, but because broad consensus allowed markets to focus on economic outlooks rather than which faction would dominate the next decision. Waller himself admitted 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 interest rate path could change.”

Transition period as a pre-set game

Timiraos points out that this week’s potential dissenting votes 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. It’s more likely that both sides of the committee are using Powell’s transition period to set the tone for upcoming policy handovers. Hawkish officials may use this week’s quarterly projections to clearly express resistance to rate cuts while inflation remains above 2%. Rosengren said, “More attention will be paid to how this influences the new chair’s view of the committee 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 warned that if Trump gains more nominations 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.”

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