Federal Reserve internal conflict! Powell pushes aggressively for rate cuts, 8 Fed presidents face collective resistance

Federal Reserve Chair Jerome Powell pushed for a 25 basis point rate cut on December 10, but a series of details during the meeting revealed the seriousness of the central bank’s divisions. Only two officials officially voted against the decision, but the quarterly interest rate forecasts showed that six policymakers believed rates should stay in the 3.75% to 4% range before the rate cut—an example of “silent dissent.” Even more surprisingly, only 4 out of 12 regional Federal Reserve banks requested a rate decrease, implying that 8 presidents might oppose the cut.

Silent Dissent: Dual Resistance in Dot Plots and Discount Rate

(Source: Bloomberg)

Powell downplayed the dissenting votes at his post-meeting press conference, but the data released by the Fed on Wednesday contained startling clues. The quarterly interest rate projections (dot plot) indicated that six policymakers suggested the benchmark federal funds rate should remain within 3.75% to 4% by the end of 2025—exactly where it was before the rate reduction on Wednesday. This implies they considered the rate cut to be a mistake.

Given that at least four of these six officials did not vote at the meeting, some Fed observers refer to the 2025 high-rate forecast as “silent dissent.” “I would be one of those silent dissenters,” said Harker. “I think that cut was a mistake.” This form of silent dissent is rare in Fed history, where policymakers typically express disagreement through formal votes rather than hinting via dot plots.

In addition to the dot plot, the discount rate suggestions provide another sign of resistance. Business leaders forming the boards of regional Fed banks can propose alternative short-term interest rate recommendations set by the Fed, historically representing the personal preferences of bank presidents. In this case, only 4 out of 12 regional banks supported a rate cut, suggesting that 8 bank presidents oppose the reduction.

This division indicates that the inclination to hold rates steady is concentrated among the presidents. These officials tend to prefer higher rates than the Federal Reserve Board members in Washington, who are appointed by the White House and confirmed by the Senate. Regional bank presidents are generally more concerned about inflation risks because they are directly in contact with businesses and workers across regions and are more sensitive to price increases. In contrast, Fed Board members focus more on employment and financial stability, leaning toward more accommodative policies.

Three-tiered Opposition Structure Within the Fed

Formal dissent: Schemer and Goolsbee voted against, a publicly recorded policy disagreement

Dot plot dissent: 6 policymakers implied in quarterly forecasts that rates should not be cut in 2025

Discount rate resistance: Only 4 of 12 regional banks support a rate cut, 8 indicate opposition

Powell’s Tough Defense and Labor Market Signals

Powell argued at the post-meeting press conference that the current economic situation is one where divergence is expected. “Many participants agree that the risks are favorable for unemployment and inflation, so what should you do?” Powell said. “You have only one tool, and you can’t do two things at once. This is a very challenging situation.” This defense reveals the dilemma facing the Fed: inflation remains above the 2% target, yet the labor market shows signs of weakening.

Powell’s judgment about the labor market was partially validated on Thursday. The Labor Department reported that initial unemployment claims increased by 44,000 to a weekly total of 236,000, the highest since the pandemic began, as of the week ending December 6. Although data can fluctuate significantly, the rise in unemployment, especially amid recent layoffs reported by companies like Pepsi and HPE, could be an early warning sign of labor market issues.

This unemployment data supports Powell’s decision afterward. If the labor market is genuinely deteriorating, rate cuts in advance could prevent an economic recession. However, opponents argue that a single data point is insufficient to change the overall judgment, especially with stubborn inflation. Citigroup economist Veronica Clark said, “I think it’s reasonable to see this divergence between you and officials because your data shows mixed signals. I believe next year’s data may, to some extent, bring some unity.”

In the coming weeks, policymakers will receive a wealth of information that will reveal the state of the labor market and inflation. While some October data will never be published, policymakers will gather information in November and December, then again at the end of January. These data will determine whether divisions within the Fed widen or narrow.

The Governance Crisis Facing the New Chair in 2026

These fractures could foreshadow what will happen in 2026, when a new chair might find it even harder than Powell to reach consensus within the Fed. Regardless of whom President Trump chooses to succeed Powell next year—including the leading contender, White House National Economic Council Chair Kevin Hasset—the new leader could face the challenge of integrating the Federal Open Market Committee.

BNP Paribas U.S. Strategy and Economics Head Kevin She said, “Chair Powell has been in this role for a long time and has a lot of respect for the FOMC. Even under his leadership, there are currently three dissenters, and I find it hard to imagine that a new Fed chair would find it easier to achieve unanimity among FOMC participants.” Since Powell became chair in 2018, he has built a strong personal reputation and policy credibility. Nonetheless, the widespread internal resistance he faces suggests that the new chair will face even greater challenges.

Trump tends to appoint officials sympathetic to his policies, and the new chair might prioritize economic growth over inflation control. This stance could lead to greater conflicts with regional bank presidents who lean hawkish. If the new chair lacks Powell’s prestige and experience, the Fed could fall into a prolonged internal deadlock, with policy-making efficiency significantly declining. Such uncertainty would be highly unfavorable for financial markets, potentially triggering increased volatility and wider risk premiums.