Powell faces unprecedented pressure! The Federal Reserve's July interest rate meeting may see two governors oppose the interest rate decision

According to the Zhitong Finance APP, the Federal Reserve is set to hold a new round of monetary policy meetings from July 29 to 30, with the market widely expecting the federal funds rate to remain unchanged in the target range of 4.25% to 4.5%. However, this meeting may see two Federal Reserve governors casting dissenting votes for the first time since 1993, indicating a growing internal divide over whether to cut interest rates.

The two officials in focus are Vice Chair Michelle Bowman, who is responsible for regulatory affairs, and Governor Christopher Waller, both of whom were nominated to the Federal Reserve Board during the Trump administration. They have previously expressed support for taking action to cut rates at the July meeting. If the committee maintains rates as expected, and the two insist on voting for a rate cut, it would mark the first occurrence of "dual dissent" in 32 years, which would have profound implications for market confidence and policy direction.

There is a general belief that if Bowman and Waller cast dissenting votes this time, it may not only be a one-time protest but could also signal a shift towards a more dovish policy focus within the FOMC, laying the groundwork for a policy pivot at the next meeting on September 16-17.

Waller's rationale for advocating a rate cut includes the continued slowdown in consumer spending, a noticeable cooling in the labor market, and the belief that the inflationary push from new tariffs imposed by the Trump administration will be a temporary phenomenon. He argues that "waiting itself is also a risk." Bowman has recently publicly supported his view, stating that if inflation continues to decline, "it is time to seriously consider the issue of rate cuts."

Currently, federal funds futures indicate that a rate cut at the July meeting is almost out of the question, with the market assigning about a 60% probability of a 25 basis point cut at the September meeting. The annual rate of the U.S. CPI rose to 2.7% in June, partly driven by the Trump administration's tariff policies, which is one of the key reasons for the Federal Reserve's inaction.

This potential dissent undoubtedly intensifies the test of Federal Reserve Chair Jerome Powell's policy leadership. Powell has consistently emphasized "patience," hoping to see inflation stabilize back to the 2% target before making policy adjustments, but this restraint is facing dual challenges from both internal and external sources.

According to former Federal Reserve economist and current Chief Economist at BNY Investments Vincent Reinhart, it is rare for Federal Reserve governors to cast dissenting votes against the chair's will, and such dissent is more likely to occur as the chair's term nears its end, serving as a bargaining chip to force the chair to make linguistic compromises in policy statements or to incorporate dissenting opinions in future meetings. There is less than a year left until Powell's term ends (May 2026). In the past 60 FOMC meetings, less than 16% have seen any form of dissent, with dissent from governors accounting for only 3%. Most dissent typically comes from regional Federal Reserve presidents rather than board members.

In addition to internal pressure, Powell also faces pressure from the White House. Trump has not only repeatedly called for the Federal Reserve to cut rates but is also considering replacing Powell on the grounds of "out-of-control renovation budget." He criticized the management of the Federal Reserve's $250 million renovation project and stated that Powell "will be out soon anyway."

Although legal experts generally believe that "over-budget renovations" are unlikely to constitute grounds for removal, if the president attempts to push for a replacement, it would pose a significant threat to the Federal Reserve's independence. The current legal protections for the Federal Reserve chair against political interference remain a gray area Renowned economist Mohamed El-Erian publicly called for Powell's resignation last week, stating that it is "the only way to protect the independence of the central bank." Although Treasury Secretary Yellen denied the need for a personnel change, he also called for institutional reforms across the Federal Reserve