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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
The writer is author of ‘Blood and Treasure, the Economics of Conflict from the Vikings to Ukraine’
The authority of Fed chair Jay Powell has faced two distinct challenges in 2025; one external and one internal.
Externally, President Donald Trump has not shied away from lambasting what he sees as overly tight monetary policy, going as far as to brand the Fed boss as a “stupid person” and a “knucklehead”. Investors, and likely Powell himself, are by now used to Trump’s tirades. What has been more concerning are a series of steps that look to trim back the Fed’s independence. The attempt to sack governor Lisa Cook, potential changes to the selection process for regional Fed presidents and the appointment of Stephen Miran to the Fed’s board while on unpaid leave from a position as White House adviser are all much bigger reasons for concern than a few angry posts on social media.
Internally, Powell has faced a rising tide of dissent from members of the Fed’s rate-setting Federal Open Market Committee on the path of monetary policy. December’s quarter-point cut in interest rates saw a three-way split with Miran voting for the half-point cut favoured by Trump and two members of the board favouring holding rates constant.
It is not long ago that such dissent would have been seen as highly unusual. When governor Michelle Bowman voted for a smaller cut in interest rates than the other 11 members of the committee in September 2024, her vote was the first dissent from a governor since 2005. The regional Fed presidents, four of whom serve rotating terms on the committee alongside the ever-present president of the New York Fed, have a longer history of dissent but the seven governors had, for almost 20 years, voted as a block. Dissenting votes by governors in 2025 hit their highest level since the late 1990s.
Perhaps counter-intuitively, the internal challenge to the authority of the chair, as expressed through rising dissent, may prove to be a safeguard of the Fed’s overall credibility. There is little doubt that Trump would prefer a yes-man as Fed chair, someone who would prioritise lower interest rates to ease government borrowing costs and juice the economy, even at the potential cost of higher inflation. In such circumstances, the credibility of the Fed itself could come under challenge. The best ward against that is a rate-setting committee where members feel able to dissent and outvote the chair.
While most advanced economy central banks nowadays set policy by committee, their procedures vary by a great deal. Academics distinguish between collegiate rate-setting committees and individualistic ones. Collegiate systems aim to agree a collective decision which all members stand behind. At the European Central Bank, for example, individual voting records are not published. In individualistic systems, such as the Bank of England, each individual committee member is responsible for their own vote which is made public. They each argue their view on policy decisions and committee members can, and regularly do, publicly disagree. Central bank heads are sometimes outvoted.
The Fed is an unusual case, which defies easy categorisation. While officially an individualistic system — with voting records published — it has historically placed a high degree of value on collegiality. When Alan Greenspan was chair, he was adept at never losing a monetary policy argument, even using once, as biographer Sebastian Mallaby has put it, “a dash of intimidation” to maintain consensus. The Fed chair has become less dominant over the past two decades but, until recently, the governors have tended to vote as one group.
Normalising dissent and being prepared to tolerate differing views may diminish the authority with which the governor is able to speak but it also shields the overall credibility of the Fed itself from a placeman chair. In effect, the Fed is becoming more like the Bank of England, an institution with a powerful but by no means dominant head.
In the 2010s, when interest rates were low for an extended period and forward guidance about the future path of rates was an especially important monetary policy tool, the ability of the FOMC to speak with one voice was very useful. High levels of dissent in that decade could have made managing expectations much trickier. In the 2020s, with a much more uncertain outlook for growth and inflation and when monetary policy has had to be nimbler, consensus is less useful. And if that consensus was dictated by an overly powerful chair intent on carrying out the White House’s will, it would be actively unhelpful.
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