By Nick Timiraos
Jerome Powell pushed through a rate cut Wednesday over the broadest reservations of his nearly eight-year tenure, and in doing so, implicitly delivered a pointed message to President Trump and his own successor: Cutting rates is harder than it looks.
The decision drew three dissents -- two from officials who opposed any cut and one from a Trump ally who wanted a larger reduction.
The formal vote understated the resistance. Four other officials registered a quieter objection in the Fed's quarterly projections: They wrote down a higher interest rate for 2025 than the one the committee approved -- a signal they wouldn't have cut. Together with the dissenters, that is roughly a third of the policymakers who attend Fed meetings.
Trump immediately voiced his displeasure that the cut wasn't bigger. "I'm looking for somebody that will be honest with interest rates," he said on Wednesday ahead of his first formal interview with a candidate to succeed Powell, whose term ends in May. "Our rate should be much lower."
Powell led his colleagues to cut at the past three meetings, including the one this week, based on two main considerations. First, he judged that inflation wasn't proving to be as big a worry as many feared when Trump announced large tariff increases this past spring.
Second, while officials have expected job growth to cool gradually this year, that process has been "a touch" cooler than expected recently, he said Wednesday.
Nevertheless, Powell gave little indication that further cuts were imminent.
The Fed's new projections underscored the challenge. Seven of 19 participants at this week's Federal Open Market Committee meeting thought no rate cuts would be warranted next year, and four saw no more than one -- likely far fewer than what the president wants, and a potential conundrum for whoever takes over in May.
Unless Trump forces major institutional upheaval, that leaves two ways he or a new chair could get lower rates next year: a much weaker economy or meaningful progress on inflation that might not be visible for months.
The division reflects a committee split over a fundamental question: not whether it could be on the brink of a policy error, but which one.
Doves see a softening labor market despite 1.5 percentage points of rate cuts over the past 15 months -- now 1.75 with Wednesday's move. They worry that waiting for proof of weakness will mean acting too late to prevent it. Hawks see a central bank cutting into an economy stronger than it looks, risking a repeat of the "stop and go" mistakes of the 1970s.
"Short of a major change in the composition of who sits around the Fed, there's going to be enormous pushback to rate cuts," said Diane Swonk, chief economist at KPMG.
The rate-setting Federal Open Market Committee is led by the chair but includes 11 other members: six other members of the board of governors, who are appointed by presidents from both parties, and the New York Fed president and four of 11 other Fed bank presidents, who take turns voting. Those bank presidents aren't political appointees.
The disagreement on display reflects how the Fed was designed, said Richard Clarida, a former Fed vice chair who served alongside Powell and is now at Pimco. "The FOMC was intentionally set up to have a mix of voting on policy by the reserve bank presidents and the board," he said. "That is very much a feature, not a bug."
The Fed's consensus-driven culture aims to build broad enough support to minimize dissents, but Wednesday's opposition to a cut wasn't necessarily "antagonistic toward the leadership," said David Mericle, chief U.S. economist at Goldman Sachs. "It could actually be somewhat helpful, because they're trying to get across 'the bar is higher' without saying, 'We're not going to do something that we might very well wind up wanting to do.'"
Trump's own advisers have acknowledged the constraints in the past few days. Treasury Secretary Scott Bessent said recently that "the chair of the Federal Reserve has the ability to move and start the discussion, but at the end of the day, he or she has one vote."
Kevin Hassett, a longtime Trump adviser and the presumed front-runner to succeed Powell, struck a similar note Tuesday. Asked what he would do if Trump publicly pressured him to cut rates, Hassett said his loyalty would be to his own judgment. "Suppose that inflation has gone from, say, 2.5% to 4% -- you can't cut rates then," he said at The Wall Street Journal's CEO Council Summit.
But the administration has also sent signals that suggest it might not quietly accept those limits.
Bessent has questioned the legitimacy of several regional Fed presidents who have been among the most hawkish voices, adding that they don't hail from the districts whose banks they lead. He said he would advocate that future Fed presidents be required to have lived in their districts for at least three years -- a rule that would have disqualified several sitting presidents. They are chosen by business and nonprofit leaders who sit on those banks' boards of directors.
Trump has already tried to remove Lisa Cook, a Fed governor appointed by President Joe Biden who has successfully challenged her firing for now. The Supreme Court is set to hear arguments in her case in January, before the Fed's next meeting.
Trump on Tuesday raised the far-fetched possibility of removing other Biden-appointed governors over how their nominations were signed -- an indication of how eager he is to find any means, no matter how legally dubious, to reshape the committee.
The Trump administration's efforts in recent months to challenge the institutional norms regarding the Fed are "like the raptors in the first 'Jurassic Park' movie testing the fences to see where the electricity was weak," said Blake Gwinn, a rates strategist at RBC Capital Markets. "They're trying different avenues.... The moat seems to have held up so far. I'm not saying it will forever."
Yet for all the focus on who sits in the chair, the economy could ultimately decide the matter.
There is a reason the hawks have dug in. "We've had five consecutive years of missing the Fed's inflation target on the high side," Clarida said. "That's a factor which weighs on people." No new chair can change that.
On the other hand, the hawkish resistance that has defined recent meetings could melt away -- not because of anything Trump or a new chair does, but because poor employment data leaves the committee little choice.
On Wednesday, Powell bluntly observed that recent employment reports have likely overstated tepid gains. After regular revisions to initial surveys are completed, job gains since April could be erased.
There are rumblings that the "slow to hire, slow to fire" job-market equilibrium over recent years might be shifting. Job growth apart from healthcare has been negative, on average, for the past six months, said Mericle, the Goldman economist.
"The challenging question is what will the labor market in particular do, " he said. He hears from more executives that they or their peers are working on plans to cut back on staff. "There is a fair bit of chatter about layoffs," he added.
Powell has three more meetings as chair before his successor takes over. By then, the data might force his hand -- or leave the decision, unresolved, to whoever comes next. If the economy does open the door for the rate cuts Trump badly wants, there is a good chance it does so by weakening in ways no president would welcome.
Write to Nick Timiraos at Nick.Timiraos@wsj.com
(END) Dow Jones Newswires
December 10, 2025 23:00 ET (04:00 GMT)
Copyright (c) 2025 Dow Jones & Company, Inc.
Comments