The Federal Reserve's ongoing meeting is shrouded in an eerie atmosphere rarely seen in years. Against the backdrop of rapidly shifting global economic trends, Fed Chairman Jerome Powell must not only navigate complex interest rate decisions but also face sharp internal divisions and external political pressure. Even more strikingly, Powell's term as chairman expires in May 2026, and the race for his successor has already ignited a heated public debate. This meeting will not only determine the direction of monetary policy but also potentially become a dual political and economic game.

The decision to cut interest rates is almost a foregone conclusion, but controversy is surging.

The Federal Reserve will announce its latest interest rate decision on Wednesday afternoon local time (2:00 a.m. Beijing time, Thursday, September 18th). Markets generally expect a 25 basis point cut, lowering the target range from 4.25% to 4.5%. While this decision appears set in stone, the real challenge lies in balancing the diverging views on future policy. Divisions within the Fed are already evident: some Trump-nominated officials advocate for deeper rate cuts, arguing that overly tight policy could drag down economic growth; while others, including some regional Federal Reserve bank presidents, worry that with inflation still above the 2% target, premature stimulus could pose risks. This divergence requires Powell to demonstrate a masterful balancing act in policymaking to avoid further escalation of internal tensions.

The shadow of political interference casts a shadow on the Federal Reserve's independence.

Prior to the meeting, tensions within the Federal Reserve had already been heightened by political interference. Trump threatened to fire Fed Governor Lisa Cook for alleged misrepresentations in mortgage applications. However, a federal appeals court ruled 2-1 in her favor, ensuring her continued service and participation in the meeting. Meanwhile, Trump's senior advisor, Stephen Miran, was quickly sworn in to fill the vacant seat on the Federal Reserve Board without resigning from his White House position. Surprisingly, his swearing-in ceremony was administered not by Powell or another Fed governor, but by Atlanta federal judge Elizabeth Branch, a break from tradition that undoubtedly added a political dimension to the meeting.

Trump has recently been putting increasing pressure on the Federal Reserve, publicly calling for a significant interest rate cut and demanding that the Board of Governors "take control" from Powell. In an interview, he stated that while the Fed has the authority to decide interest rate policy on its own, "they should listen to smart people like me." Furthermore, US Treasury Secretary Scott Bessent has begun shortlisting Powell's successor, including four officials who will attend the meeting. This succession race not only makes it difficult for the outside world to accurately interpret the Fed's policy signals, but also poses unprecedented challenges to the Fed's independence.

Internal dissent may create historic pressure on Powell's leadership

Since becoming Fed chairman in 2018, Powell has only faced three dissenting votes at a meeting in September 2019. At that time, there were disagreements within the Fed on whether to provide a buffer for the economy to cope with the impact of Trump's trade war with China. Today, a similar scene may be played out again. Analysts expect that the board members nominated by Trump, including Milan, Christopher Waller and Michelle Bowman, may support a larger rate cut or even vote against it. If there are three or more dissenting votes, it will be regarded as a serious questioning of Powell's leadership. Kenneth Rogoff, a Harvard economist and former chief economist of the International Monetary Fund, described the current situation: "Trump seems to be holding a beauty contest for the Fed chair candidate. This is by no means a normal moment."

Notably, Waller and Bowman had already dissented from the decision to hold steady at the July meeting, arguing for a rate cut. This marked the first time since 1988 that two Fed governors had dissented simultaneously at a single meeting. If the number of dissenting votes increases further at this meeting, it could be interpreted as political stunts rather than a pure policy disagreement. Former Cleveland Fed President Loretta Mester expressed concern: "Politically motivated voting could undermine the Fed's credibility."

The subtle game of policy statements: forward guidance becomes the key

The Fed's policy statement following each interest rate decision is a crucial tool for Powell to build consensus. The statement's wording not only explains the current policy decision but also provides clues to future policy direction. However, when officials choose to dissent and dissentingly vote, they risk losing the opportunity to influence the statement's wording. At a 2011 meeting, Boston Fed President Eric Rosengren explicitly stated that attempting to build consensus by revising the statement's wording is pointless when some officials explicitly dissent from the majority decision.

Waller emphasized in an interview that dissenting votes should be used with caution: "If you have a 'vote against every meeting' mentality, then you don't even need to attend." This means that dissenting votes at this meeting not only reflect policy disagreements but also could affect the clarity of future policy signals. If Trump's nominees express support for a larger rate cut through dissenting votes, other officials who are more cautious about a rate cut may be inclined to issue more conservative forward guidance. Conversely, if officials who advocated for a rate cut in July support Powell's decision this time, they may gain greater influence in guiding the path of future rate cuts.

The Federal Reserve enters a new era, with more dissent likely to become the norm

Some senior Fed officials believe the central bank may be entering a new era of disagreement. Former Dallas Fed President Robert Kaplan stated, "The composition of the Fed will be crucial over the coming year, and we may need to get used to more dissent." This change may stem from the Trump administration's continued intervention in the Fed and uncertainty surrounding its successor.

Powell's comments at the post-meeting press conference will also be closely watched. His responses will not only influence market expectations for short-term interest rates but may also have a profound impact on long-term interest rates and asset prices. Market analysts believe that internal divisions within the Federal Reserve and external political pressures may make the policy signals from this meeting extremely complex, and investors should interpret them with extreme caution.

Summary: How does Powell keep the rudder steady in the storm?

This Federal Reserve meeting is destined to be turbulent. Behind the decision to cut interest rates, Powell will have to navigate internal policy disagreements, external political pressure, and a fierce competition for succession. Whether it's objections to Trump's nominees or the cautious stance of regional Fed presidents, the Fed's decision-making process is fraught with uncertainty. The wording of the policy statement and Powell's post-meeting comments will be crucial for the market's interpretation of future economic trends. Amidst this dual political and economic game, whether Powell can steer the Fed's ship steadily and guide it through uncharted waters warrants close attention from global investors.