Powell’s United Front on Rates Is Cracking. Trump Is Getting What He Wants.

Fed Chair Jerome Powell testifies before the Senate Committee on Banking, Housing, and Urban Affairs earlier this week. (Kent Nishimura/Getty Images)

One of Jerome Powell’s strengths as Federal Reserve chair has been unity. Behind closed doors, policymakers sometimes clash over economic models and inflation forecasts, but in public, the central bank moves as one. Markets like that, and the Fed’s effectiveness depends on it.

That’s why cracks appearing in Powell’s carefully managed front are worth noting. Less than a week after Powell told the world the Fed was in no hurry to cut rates, two of his fellow voting members openly floated the possibility of doing just that as soon as July. The shift spooked markets, sending the dollar and bond yields lower. It also handed President Donald Trump exactly what he wanted.

For months, Trump has been hammering Powell, demanding deep interest-rate cuts and accusing him of moving too slowly. His pressure campaign is changing perceptions of the central bank. The Fed looks divided. Powell’s united front is cracking, and that erodes confidence in the central bank’s independence.

The stakes are high. Central bank independence isn’t just a bureaucratic talking point. It underpins the credibility of monetary policy, the stability of the dollar, and the global role of U.S. financial markets. If investors believe the Fed is bending to White House pressure, confidence erodes and volatility follows.

The Fed’s latest Summary of Economic Projections made the growing cracks even clearer. While the median forecast still shows two rate cuts this year, policymakers are split. Seven of the 12 voting members on the Federal Open Market Committee see no rate cuts at all. A handful want to move faster. And two of the loudest voices pushing for action, Vice Chair for Supervision Michelle Bowman and Gov. Christopher Waller, are Trump appointees. Waller’s name is being floated as a potential replacement for Powell when his term ends next spring.

No one is saying Trump’s influence is prevailing at the Fed, but it is starting to look as if it is weighing on decisions. And that alone is a problem. A big one.

The perception of a fractured Fed is good for Trump in more ways than one. Politically, it reinforces his narrative that Powell has lost control, and new leadership is needed to restore order. Economically, it keeps market expectations leaning dovish.

In truth, Trump’s rhetoric is only part of the reason the Fed looks vulnerable. Some policymakers worry the central bank is waiting too long to cut rates and risks falling behind the curve. Inflation has cooled and the labor market, while still strong, is showing signs of softening. Powell and the more hawkish members of the Fed argue that new tariffs, immigration crackdowns, rising deficits and geopolitical risks could trigger another spike in inflation. They want to see how that plays out before cutting rates.

Investors, meanwhile, worry that the Fed could eventually bend to political pressure. Markets are flashing warning signs. Bond yields and the dollar have fallen in recent days, in part on speculation that Trump could soon announce Powell’s successor, possibly within the next few weeks. The idea of a “shadow chair,” a Trump-approved replacement waiting in the wings, has fueled concerns that the Fed’s policy path could be steered by politics rather than economic fundamentals.

Under a shadow chair, markets may price in rate cuts, the dollar may continue to soften and the Fed’s reputation for independence could slip further, even if Powell holds firm.

July isn’t fully in play, but the conversation has shifted. The cracks in Powell’s united front are widening and the shadow of Trump’s influence is becoming harder to ignore.

The Fed’s job is to hold the line. If the market starts to believe it cannot, Trump wins the battle whether the Fed cuts in July or not.

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