Interest Rate Showdown: Trump vs Powell Heats Up

In a rare and politically charged moment at the Federal Reserve, two Trump-appointed governors broke ranks with Chairman Jerome Powell and voted to cut interest rates—despite the central bank’s decision to hold steady.

At Wednesday’s Federal Open Market Committee (FOMC) meeting, the Fed opted to maintain its benchmark interest rate in the range of 4.25% to 4.5%, resisting growing calls—especially from the White House—to ease borrowing costs. But the decision wasn’t unanimous. Fed Governors Michelle Bowman and Christopher Waller, both appointed by former President Donald Trump, dissented, pushing for a quarter-point cut.

It was the first time in over three decades that two sitting governors opposed a Fed rate decision, signaling deep division within the institution.

“We preferred to lower the target range by 25 basis points at this meeting,” Bowman and Waller stated, citing weakening labor market signals and inflation that appears increasingly under control.

Trump's Frustration with Powell Reaches Boiling Point

President Trump, who has long criticized Fed Chair Jerome Powell for what he calls “dragging his feet,” was quick to seize on the dissent as validation of his position. Speaking at a signing ceremony for the VA Home Loan Program Reform Act, Trump once again referred to Powell as “Too Late.”

“He should have lowered interest rates many times. Europe has done it eleven times. We’ve done none. And it’s hurting homebuyers,” Trump said during the live-streamed event on Newsmax.

Trump has gone as far as threatening to replace Powell, whose term ends in May 2026. While legal experts question whether the president can remove the Fed chair without cause, Trump appears content to wait for Powell’s term to expire—making no secret of his desire to install someone more aligned with his economic strategy.

“He’s going to be out pretty soon anyway,” Trump said. “Each point he keeps rates up costs us $365 billion a year on the debt. If we brought rates down, we’d save that. Why are we sitting at number 38 in the world when we should be first?”

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Fed’s Messaging Contradicts Market Expectations

While markets had expected no move in July, they were also anticipating dovish hints about the September meeting. Instead, Powell offered a cautious outlook.

“We have made no decisions about September,” Powell said at a press conference. “We’ll evaluate all the data we receive between now and then.”

That caution seemed to spook investors, with markets dialing back their expectations for a September rate cut. According to CME’s FedWatch Tool, the odds of a quarter-point cut dropped from 64% to 46% following Powell’s remarks.

Powell did acknowledge that inflation is declining, but warned that tariffs—many of them introduced or expanded under the Trump administration—could fuel renewed price pressures.

“Our job is to prevent a one-time jump in prices from becoming a longer-term inflation problem,” he said.

Still, recent data paints a more favorable inflation picture. The Commerce Department reported second-quarter GDP growth at a solid 3%, with core inflation falling to 2.5%—the lowest level in over a year and approaching the Fed’s 2% target.

Trump Appointees Shift the Debate

Bowman and Waller’s dissents reflect a broader concern among Trump-aligned policymakers: that the Fed is acting too slowly and allowing high interest rates to suppress housing, investment, and consumer sentiment.

“It was the most well-telegraphed dissension ever,” said Jack McIntyre, a portfolio manager at Brandywine Global. “Their real effect was to nudge Powell a little closer to the dovish camp.”

While Powell maintained that the Fed is independent and data-driven, the growing pressure from inside and outside the institution may become harder to ignore—especially if upcoming jobs reports show further cooling.

National Economic Council Director Kevin Hassett echoed that sentiment.

“We 100% respect the Fed’s independence,” Hassett said on CNBC. “But we also expect they’ll catch up to the data. When they do, it’ll be a huge positive for the economy.”

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Looking Ahead: September and Beyond

The Fed’s next major moment comes in late August at the annual Jackson Hole summit, where Powell is expected to give a closely-watched policy speech. The September FOMC meeting could be a tipping point, especially if economic data continues to soften and pressure from Trump intensifies.

With two Fed governors already breaking with Powell—and more potentially joining them—Trump’s vision of lower rates may not be far off. Whether it comes in time to revive the housing market and ease the pressure of servicing the national debt remains to be seen.

But one thing is certain: the fight over the Fed’s direction is no longer happening behind closed doors. It’s public, political, and heating up fast.