Federal Reserve Divisions Signal End of Powell’s Consensus Era

Federal Reserve Chair Jerome Powell departs a press conference in Washington, D.C., on October 29. Kevin Lamarque/Reuters

Washington Fed officials have split on whether to continue cutting rates, signaling the end of the era of consensus under Jerome Powell.

The Fed’s latest decision at the end of October to cut rates by a quarter percentage point drew pushback: one advocated holding rates steady, the other for a more aggressive cut. Such divergences had not been seen since 2019.

The growing polarization among Fed officials is evident in public remarks, posing a challenge for Powell to preserve a consensus.

The split is driven by economic uncertainty and questions about the impact of President Donald Trump’s trade policy. The rate-setting committee is divided between inflation hawks and those who believe it is necessary to strengthen the labor market.

Implications for Policy and Credibility

Economists describe the Fed’s split as mixed, but they reflect a significant shift in the policy of the world’s most powerful central bank.

“If these intellectual differences cannot be reconciled, it could undermine the Fed’s effectiveness and credibility”

“In the next decade, the Fed could become like the Supreme Court, where people vote along party lines”

As the head of the U.S. central bank and chair of the influential rate-setting committee, Powell faces a difficult task, but the outcome may be beyond his control, as the consensus depends on future data and the economy’s dynamics.

In recent years, the Fed chair’s role has grown as a policy broker, guiding discussions toward consensus; but the current crisis of consensus shows how fragile this model can be.

Observers say that the tradition of seeking unity was established by former chairs Ben Bernanke and Janet Yellen; the current state underscores how unstable policy can be when disagreements surface. In the coming months, after the government reopens and important inflation and employment data arrive, Fed decisions will remain in the spotlight – and their trajectory will depend on what new data appear.