The Fed Hasn’t Seen a Split Like This in 30 Years

Federal Reserve Chairman Jerome Powell, pictured here on July 22, faces pressure not only internally but also from outside the Fed. (Andrew Harnik/Getty Images)

It has been more than three decades since two Federal Reserve Board governors dissented on an interest-rate decision at the same Fed policy meeting. That kind of internal division is rare, and markets pay attention to it.

A double dissent could happen again at the July 29-30 Federal Open Market Committee meeting. Fed Governor Christopher Waller and Vice Chair for Supervision Michelle Bowman—appointees of President Donald Trump—have both said publicly that they would support a rate cut at the Fed’s coming policy meeting. If the committee decides to hold the federal-funds rate steady at a targeted range of 4.25% to 4.5%, as is widely expected, but Waller and Bowman vote to ease, it would mark the first time since 1993 that two governors on the board broke ranks at the same meeting.

Dissents by Waller and Bowman could be a one-off show of frustration from the FOMC’s dovish flank. But they could also mark the beginning of a shift in the committee’s center of gravity and raise the stakes heading into the next FOMC meeting on Sept. 16-17. A rare, two-governor dissent could indicate growing urgency inside the central bank to lower rates, even as Fed Chair Jerome Powell and the FOMC have been reluctant to ease policy with inflation still above the Fed’s 2% annual target.

While it is rare for governors to break with the Fed chair, it happens more often toward the end of a chair’s term, says Vincent Reinhart, BNY Investments’ chief economist and a former Fed economist. That is because “recalcitrant” policymakers can usually use their dissent as a bargaining chip, he says—in this case, perhaps, prompting Powell to nod to their views in the press conference that follows the meeting, or change some wording in the Fed’s statement, or promise that their views will be considered more fully in future meetings.

When a Fed chair’s tenure is capped, their soft power also begins to diminish, says Reinhart. Likewise, Fed governors are often reluctant to dissent publicly because it could signal that they lack influence over the rest of the committee.

Current trading in fed-funds futures implies a near-zero percent chance of a rate cut at the central bank’s July meeting, especially after inflation ticked up to 2.7% in June, driven higher in part by President Donald Trump’s tariff policy. The market is placing odds of a quarter-point rate cut in September at just over 60%, according to the CME FedWatch tool.

Inside the Fed, Powell has been urging patience. The central bank chair has said he wants to see how tariffs play out and gain greater confidence that inflation is headed sustainably to 2% before cutting. Waller and Bowman have argued that waiting carries its own risks. Waller says any inflation caused by tariffs will quickly pass through the economy. He also points to declining consumer spending and signs that labor demand is slipping across the country as reasons to cut now. Bowman recently joined him, saying that if inflation continues to ease, it is time to start talking seriously about lowering rates.

Two Fed governors last dissented at the same meeting in December 1993 under then-Fed Chair Alan Greenspan, when governors Wayne Angell and Lawrence Lindsey both opposed the Fed’s bias toward looser monetary policy. The vast majority of Fed policy meetings in the modern era have ended in unanimous votes.

Of the 60 meetings Powell has presided over, only about 16% had at least one dissent. When dissent happens, it tends to come from regional Fed presidents, not governors on the board. Just 3% of Powell’s decisions have had a governor dissent.

Powell is facing pressure not only internally but also from outside the Fed. Trump hasn’t called only for lower rates; he has floated firing Powell over what he has claimed is a mismanaged, overpriced $2.5 billion renovation of the Fed’s Washington, D.C., headquarters. But the president has seemingly backed off the idea, telling reporters recently that Powell, whose term as chair ends in May 2026 is “going to be out pretty soon anyway.”

Legal experts say it would be hard to make the case that a pricey renovation is cause for dismissal.

Recent court decisions suggest the Fed is treated differently from other independent agencies, but how far that protection goes is relatively untested. Even the suggestion of a forced ouster has been enough to rattle investors, particularly those concerned with Fed credibility and inflation expectations.

Trump has publicly exhorted Powell to lower interest rates, and has seriously considered removing Powell on more than one occasion. He has even consulted with GOP lawmakers about doing so. He hasn’t followed through, likely in part because of the market risk, but the message was sent. This is no longer a theoretical threat to central bank independence. It is an active, unresolved question.

There is also institutional pressure coming down on Powell. Economist Mohamed El-Erian publicly called last week for Powell’s resignation, arguing that stepping down might be the only way to preserve the Fed’s independence. Treasury Secretary Scott Bessent dismissed that idea, but not in the most reassuring terms.

Bessent said that there is “no need” for Powell to leave now, and then called for broad institutional reform at the Fed. That kind of call coming from the Treasury would have been unthinkable in previous administrations. And it lands at a particularly vulnerable moment for the central bank. The Fed’s annual Jackson Hole symposium, Powell’s last as chair, is just weeks away, and the Fed’s next policy framework review is currently under way. The ground under Powell is shifting, even if the Fed holds rates steady.

The July meeting isn’t just about policy. It’s a referendum on Powell’s ability to hold the line against dissidents on his own board, against a president eager to reshape the Fed in his image, and against a chorus of outside voices urging him to step aside. If Powell hints at easing, markets could take it as a sign that the Fed is bending, either to internal pressure, political pressure, or both. If Powell sticks with the current script, he risks more confrontation with Trump and the appearance of a chair increasingly isolated within his own institution.

The Fed is still trying for a soft economic landing. But Powell’s more immediate challenge may be keeping the institution intact midflight.

Corrections & Amplifications: Former Federal Reserve governors Wayne Angell and Lawrence Lindsey both dissented at the Federal Open Market Committee meeting in December 1993, opposing what they considered the Fed’s bias toward looser monetary policy. An earlier version of this article incorrectly stated that both opposed the Fed’s tightening bias.

Write to Nicole Goodkind at nicole.goodkind@barrons.com