Federal Reserve Governor Christopher Waller went out on a limb last week and urged the central bank to cut interest rates at its next meeting in nine days. But Waller is likely to be soundly outvoted by his fellow governors on the Fed’s board. If anything, the majority of the Fed is growing less interested in cutting rates in September than they were in June, said Aditya Bhave, senior U.S. economist at BofA Securities.
Waller’s isolation should be a wake-up call for Wall Street traders who think low interest rates are coming next year, no matter what, simply because President Donald Trump is going to appoint a new sheriff at the Federal Reserve. Jerome Powell’s term as Fed chair ends next May, and the sentiment goes that the new chair will be a “low-rate guy” who will deliver steep interest-rate cuts. Legendary macro investor Paul Tudor Jones summed up this view in a recent Bloomberg interview, when he said people “know that we are going to cut short-term rates dramatically in the next year.”
But analysts who follow the Fed, as well as former staffers at the central bank, think this confidence is out of touch. The structure of the Fed means that a new chair could still face an uphill battle in achieving Trump’s goal.
While one or two rate cuts after next May seem plausible, “if you want to go below that, it is going to be much more challenging to get the committee on board,” Bhave said. Assuming the new Trump-appointed chair would want to cut aggressively, they would have to get six more Fed officials to go along. It takes seven votes to get a majority on the Fed’s 12-member Federal Open Market Committee (FOMC), which sets the interest rate. These officials won’t back rate cuts just because Trump or a new Fed chair want it; they will demand data to back up the move. “The economic case for a rate cut has to be apparent in the data and the forecast,” said Ellen Meade, a former top Fed staffer and now an economics professor at Duke University. “If the push for cuts isn’t coming from inside the Fed by some of those voting members, I don’t see how the new chair would have a majority on the FOMC to move.”
Trump has spend the last several weeks bashing Powell while publicly considering firing him. But even with all the theatrics, there are other people standing in the president’s way. This year’s interest-rate committee has cooled on the idea of rate cuts, at least in September, Bhave said. Inflation is stuck well above the Fed’s 2% target even without taking into account the White House’s new tariffs on imports, he added. Krishna Guha, vice chairman of Evercore ISI, said Fed officials “worry the tariff shock is so large and messy that it could contaminate underlying inflation.” He noted that the public may accept that inflation is here to stay, which would just ensure that higher prices persist. “The Fed cannot take this for granted and has to act in ways” to make consumers trust that inflation is coming back to the 2% goal, Guha said. Next year’s committee doesn’t get any easier. Cleveland Fed President Beth Hammack and Dallas Fed President Lorie Logan will be voters. Economists at Deutsche Bank say that they both are among the seven Fed officials who don’t see a reason to cut rates at all this year.
Hammack worked at Goldman Sachs for three decades, rising to become its co-head of global finance, before being selected by the Cleveland Fed’s board of directors as president in August 2024. She dissented from the last Fed rate cut in December 2024. Logan is the former top staffer at the New York Fed who is well regarded for her role in guiding the central bank’s reaction to the COVID-19 pandemic. Meade, the former Fed staffer now at Duke University, said that the Fed’s interest-rate committee doesn’t usually vote by a slim majority. Dissents are very unusual. Legendary former Fed Chair Paul Volcker, who famously put the brakes on inflation in the early 1980s, lost a board vote in February 1986 and considered resigning. The vote was considered embarrassing, but he did serve out his term, which ended a year later. Every vote matters, and Trump and his surrogates are aware of this math. So they are widening their attacks to other top Fed officials. In the Oval Office this week, Trump said Powell was a “terrible” Fed chair, but then added: “That goes for his board, too, because his board is not doing the job because they should try and rein this guy in.” Former Fed Governor Kevin Warsh, who is reportedly under consideration to replace Powell, has talked about “regime change” and “breaking some heads” at the central bank.
But what makes the math even more complicated for the White House is Powell himself. While Powell’s term as Fed chair ends next May, his term as a Fed governor doesn’t end until early 2028. If he would stay as a governor, this would likely make the Trump-appointed Fed chair’s job even harder. Analysts think that is why Trump and his surrogates continue to be fixated on cost overruns on the $2.5 billion renovation of the Fed’s headquarters in Washington. Even when Trump said this week that he was unlikely to fire Powell, he kept alive the option of removing Powell for “cause” because there was fraud in the renovation project. The Supreme Court indicated in May that Trump can’t fire Powell for policy disagreement and can only be removed for cause, meaning neglect of duty or malfeasance. Powell has not addressed whether he plans to stay on the Fed board after his term as chair expires. “Trump is making an effort to build a case, however weak, that there are some other grounds” for removing Powell because of the cost overruns on the renovations, said Kathryn Judge, a law professor at Columbia University. “Anyone can tell that the concerns about the renovations are a pretext for removing Powell because he wants interest rates to be lower.”
Another reason there has been so much pressure on Powell about the renovation “is an effort to encourage him to leave his role as governor,” she added. The Fed’s leadership is comprised of seven members of the Board of Governors in Washington and 12 regional Fed presidents. Democrat-appointed Fed Governor Adriana Keugler’s term on the board is up in January. If Powell leaves, that means Trump appointees would have a slim 4-3 majority on the Fed board. “Having a majority on the Board — 4 seats — would get them somewhere. It won’t get them a majority on the FOMC, but it could provide them with leeway to make other institutional and procedural changes,” said Meade. Robert Brusca, president of FAO Economics, said having a Trump majority on the board “could change the tenor of the policy discussions.” In one scenario, the board could vote to cut the Fed’s discount rate — the rate that banks pay to borrow from the Fed. Only the board votes on the discount rate. That could force the Fed’s larger interest-rate committee to go along with a move, Brusca said.
In addition, tough talk from Trump and his surrogates has some experts concerned that a new Republican majority on the Fed board could try to remove opponents to their interest-rate plans. “There is this idea that if the Trump appointees end up with the majority of the board, they could remove regional Fed presidents,” Judge said. It is an important issue to watch,” she added. “The tool has never been used historically. Regional Fed presidents have played a vital role in maintaining the independence of the Federal Reserve system. That is certainly a risk that has grown.” It is not clear that all of Trump’s Fed appointees would go along with either plan. For instance, Fed Governor Waller spent a decade as a top official at the St. Louis Fed. For Trump, the path to lower rates may start with Powell’s departure or removal as Fed chair, but more challenging work would lie ahead.
