Washington
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The next chair of the Federal Reserve might already be a disappointment to President Donald Trump – even before they’re named.
Trump has demanded aggressive cuts to interest rates next year, but that’s looking more and more like an uphill battle: On Wednesday, as Trump interviewed former Fed Governor Kevin Warsh for the top job at the central bank, Fed officials penciled in just one rate cut in 2026.
The president continues to insist that interest rates should be much lower, even criticizing the Fed’s third consecutive quarter-point cut, announced Wednesday, as “too small.” Earlier this week, Trump told Politico that he fully expects whoever he picks for Fed chair to cut rates.
Above and beyond the fact that a Fed chair doesn’t unilaterally decide on rate moves, cutting rates next year seems like an impossible task anyway, due to the outlook for the economy in 2026 and the stark divisions within the central bank’s powerful rate-setting committee.
Fed Chair Jerome Powell’s term ends in May; Trump last week said he expects to name a successor “early next year.” National Economic Council Director Kevin Hassett has been seen as the front-runner, but Trump’s interview of Warsh shows the job isn’t necessarily Hassett’s yet.
The Fed chair is a powerful and influential position, but that person doesn’t have unilateral control over interest rates, as laid out in the Federal Reserve Act.
Monetary policy is set by the Federal Open Market Committee, a 12-person group within the Fed. Each member has one vote, including the committee chair, who is voted into that position by their colleagues. The Fed chair typically serves as FOMC chair.
“The chair controls the agenda for the meetings, but in the end, their job is to make compelling arguments to FOMC members to get them to vote for the policy that they prefer,” said Bill English, a former adviser to the Fed’s Board of Governors. “And that’s pretty hard in the current situation.”
The FOMC includes all seven members of the Fed’s board, who are all presidential appointees; the New York Fed president; and four other regional bank presidents, who vote on a rotating basis each year. There are 12 regional Fed banks, including the one in New York.
Investors and economists broadly view this structure as a key guardrail insulating the Fed from politics, considering it’s an independent agency that reports to Congress and not the president.
“If President Trump appoints a new Fed chair who is more sympathetic to lowering interest rates, that could affect the tone of the Fed at the margins,” said Bill Adams, chief economist at Comerica Bank, “But the structure of the Fed means any swings in monetary policy will be much smaller than any swings in electoral politics.”
Fed officials often emphasize that they’re data-dependent. So far, there isn’t a convincing argument for massive rate cuts based on the numbers.
The Fed typically lowers interest rates on signs that the labor market is weakening; inflation is slowing too much; or a combination of the two. The Fed is currently focused on preserving the labor market’s strength, rather than actively trying to stimulate it.
According to their latest economic projections, released Wednesday, Fed officials expect unemployment next year to hold steady at 4.4%, a relatively low level, and for inflation to hover well above their 2% target. Officials also revised up their 2026 GDP forecast sharply compared to their forecast from September. Put together, it means Fed officials don’t think the economy needs the stimulus it would get from cheaper borrowing costs.
“It looks like the baseline would be solid growth next year,” Powell said this week, citing the expected benefits of Trump’s tax and spending bill passed earlier this year and continued investments in AI.
Several Fed officials seem to agree that the economy doesn’t need significant rate cuts next year and that doing so would threaten to undo progress in taming inflation from its 40-year highs in 2022.
On Wednesday, Kansas City Fed President Jeffrey Schmid again voted against the Fed’s latest decision to cut rates for the third-straight meeting, this time joined by Chicago Fed President Austan Goolsbee.
But even more officials disagreed with cutting rates this month in a different way: In their latest economic projections, six policymakers estimated the Fed’s key interest rate should end 2025 in a range of 3.75% to 4%, where it stood before Wednesday’s cut.
And two Fed presidents who will vote next year — Dallas’ Lorie Logan and Cleveland’s Beth Hammack — expressed concern with lowering rates this month, meaning they likely won’t back any continued rate cuts the next Fed chair might push for.
“The Fed hasn’t shut the door on further cuts,” Ellen Zentner, chief economic strategist at Morgan Stanley Wealth Management, said in an analyst note Wednesday. “But Chair Powell has raised the bar for further action.”
