In a tense and unusually divided meeting, , has decided to lower interest rates by 0.25 points to a range of between 3.5% and 3.75%. This has been since September because fears about the deterioration of the labor market outweigh the fear of a rebound in inflation.
Powell has had to work to calm the waters and minimize disagreements. The decision had three dissenting votes: Vice President Stephen Miran, Trump’s Trojan horse at the Fed, opted to lower rates by 0.5 points. On the contrary, the president of the Chicago Federal Reserve, Austan Goolsbee; and Kansas Regional Fed Governor Jeffrey Schmid voted to stop reducing the price of money.
The last meeting of the year also provides new economic forecasts and offers some clues about the agency’s roadmap for 2026. The agency anticipates that the economic outlook will improve next year and only expects a rate cut throughout the year.
The Fed is experiencing turbulent times. On the one hand, it suffers attacks on its independence due to the harassment of the president of the United States, Donald Trump, of the head of the monetary institution, Jerome Powell, whom he accuses of being slow in reducing interest rates. Trump has insulted and harassed the president of the Fed, calling for his resignation. And he has placed a couple of his pawns within the central bank to force deeper cuts. The Republican’s movement has exacerbated the lack of consensus and internal division within the Federal Reserve.
On the other hand, the institution is in a difficult position. It has to decide between two opposing forces: persistent inflation that does not end up falling below the 2% target and a labor market that shows signs of weakness.
Trump’s aggressive tariff policy does not help give visibility to an economy that, despite everything, is growing at a good pace, but which leaves some unknowns. Economists are beginning to talk about K-shaped growth. In which the technology sector’s dazzling investments in artificial intelligence (AI), along with the boom in markets, with records on the stock market, may be hiding another side of the troubled economy.
Inflation, furthermore, continues to ease, with growing tension in energy and service prices. The latest official data so far showed a slight rebound to 3%, with a trend that moves it away from the desired 2%, which the Fed has as its objective.
In the midst of this situation, The Trump Administration is rushing to name a replacement for Powell, whose term ends in May. The president assures that he already has a shortlist of candidates, among which are Kevin Hassett, director of the White House National Economic Council, and Kevin Warsh, former governor of the Federal Reserve.
“We’re going to consider a couple of different people,” Trump said Tuesday night aboard Air Force One, where he usually chats informally with reporters. Investors are looking at Hassett, the favorite in analyst bets, according to Polymarket, which gives him a 70% chance.
When reporters asked Trump last week if the chosen one would be Hassett and he smiled complacently, . They fear that the favorite candidate will be too accommodating with the Republican president and will put the president’s short-term desires before the real needs of the economy; They believe it could support a sharp rate cut and damage the Treasury and fixed-income bond markets. To try to clear up doubts, Hassett assured on Tuesday that he would not allow himself to be pressured by anyone. The reaction of the markets and Trump’s doubts reopen a mystery about Powell’s successor when it seemed that everything had already been decided.
The Federal Open Market Committee (FOMC), the bombastic name of the body that decides on the direction of monetary policy, has decided almost blindly. It has reduced interest rates with less data than usual to carry out a rigorous analysis, the largest in history, keeping hundreds of public agencies in the country without activity between October and November. The federal lock prevented the collection of data and delayed the publication of essential statistics to take the temperature of inflation or the labor market. The federal agencies in charge of these statistics will publish next week the last batch with incomplete data due to the shutdownas it is known in English at the close.
The Fed delves into lowering the price of money, despite the fact that at this December meeting. Then, Powell alluded to a simile to suggest that he could pause the rate cuts: “What do they do if they are driving in the fog? You slow down.” But in just two weeks, feelings have changed.
The affordability, or cost of living, crisis has permeated American politics. And the labor market offers symptoms compatible with the flu. The unemployment rate increased in September, up to 4.4%, a historically low level, but a change in trend that worries monetary policymakers. And although job creation that month was positive, 119,000 new jobs, it was the lowest in a September since the pandemic.
