Waller and Bowman: A Shift in Fed Dynamics
Throughout much of this year, the Federal Reserve has maintained stable interest rates after a series of reductions in late 2024. This fragile consensus could change.
Recently, Governor Michelle Bowman, one of the most hawkish members of the Fed for 2023 and 2024, indicated that the meeting on July 30 might lead to a rate cut sooner than expected, signaling a significant shift from her earlier position. Her remarks in Prague came shortly after Governor Christopher Waller suggested a potential cut next month.
“We are prepared to support a reduction in the policy rate at the next meeting,” Bowman stated, noting that inflationary pressures remain contained. She also referenced the White House’s new tariff regime, observing that it hasn’t spurred increased consumer prices.
“Retailers appear hesitant to raise prices on essential items,” she added.
This new stance is noteworthy, especially given Bowman’s previous resistance to rate cuts, including her dissent against the Fed’s decision to lower rates by 50 basis points last September, advocating for smaller adjustments instead. This signals internal divisions among the Fed’s board members.
If most members of the Federal Open Market Committee (FOMC) decide to hold rates steady again in July, as hinted by Chair Jerome Powell, it might trigger an unusual situation: a double objection from current federal governors.
A Potential Break in Tradition?
Disagreement within the Fed isn’t rare, but it’s usually more pronounced in the President’s appointees rather than the committee members. Recently, it’s almost unheard of for two governors to express opposing views simultaneously. The board historically presents a united front, particularly under Powell’s leadership.
A joint opposition from Bowman and Waller would undermine the facade of unity and mark the first time in decades that two governors have contradicted the policy preferences of the Chair.
It’s worth noting that both are Trump appointees. Waller and Bowman were appointed during his first term and consistently highlight concerns from the supply side of inflation, particularly regarding the labor market. This highlights a skepticism about groupthink within the central bank. As Powell resists further cuts, it signals a longing for open discussion.
Powell’s Cautious Approach
Chairman Powell continues to express what his supporters describe as “patience.”
“Right now, we are positioned to wait and learn about potential economic trajectories before considering any changes,” he stated last week. Other officials have echoed his cautious sentiment, especially with rising concerns that tariffs might provoke inflation.
However, this waiting game may not reflect the whole board’s views anymore.
Bowman and Waller seem to believe that the dangers lie in delaying action, particularly concerning the labor market. If economic indicators weaken further, or if core inflation continues to decline, they may push for change.
Should these two governors voice dissent while the Fed maintains interest rates in July, it could reveal a growing rift. This won’t be a mere disagreement; rather, it may publicly challenge Powell’s credibility and authority.
Reviving Trump’s Policy Influence
This situation signals a resurgence of Trump’s policy legacy within the Fed. While Powell was appointed by Trump in 2017, he often found himself at odds with the administration’s agenda. Tax cuts, immigration restrictions, and economic nationalism colored his tenure. In contrast, Bowman and Waller appear to be pushing in different directions. Even if Powell holds firm, he still seems to lean toward a rate cut.
According to reports, there’s a new internal coalition forming within the central bank, potentially shifting future power dynamics.
Future Leadership Challenges
An important aspect also looms—succession. Jerome Powell’s term is set to end in the first half of 2026, meaning Trump will have the opportunity to nominate a new Fed leader.
This makes the July meeting more than just a policy evaluation; it becomes a test of leadership.
If Bowman and Waller maintain their opposition, it won’t just signal a break from Powell’s approach. It could foreshadow who is willing to challenge prevailing views that have often directed Powell’s choices, even when they clashed with reality. The next chair should be someone capable of questioning assumptions and prioritizing results over reputation.
In the upcoming weeks, we may learn which Fed members are prepared to lead or perhaps still waiting for the right moment to act.
