WASHINGTON — President Donald Trump wants significantly lower financing costs and has made it clear that he expects the name chosen to replace Jerome Powell as chairman of the Federal Reserve (Fed) to achieve that goal.
But intense divisions within the U.S. central bank over the path forward for interest rates indicate that could be difficult to deliver, creating a challenge for whoever Trump selects for the top job.
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The Fed cut interest rates by 0.25 percentage points. It was the third consecutive cut since September, which took rates to a range of 3.5% to 3.75%. Still, the decision was far from unanimous. Six of the Fed’s 19 policymakers expressed disagreement with the cut, indicating a preference for keeping rates as they were.
New interest rate projections released by the central bank also highlighted how little consensus there appears to be on further cuts next year. Seven authorities do not foresee any, while eight defend at least half a percentage point in cuts.
That left Powell explaining at a news conference that such a wide range of views is natural at a time when the Fed’s goals of low, stable inflation and a healthy job market are in tension.
But this degree of dispersion could become a major obstacle for the next president, who is expected to take office in May.
“I view the committee’s welcoming of diversity of views at this time as a warning shot to the next president,” said Vincent Reinhart, a former Fed economist now at BNY Investments. “The next president needs to convince his colleagues. That’s the main message.”
The Fed’s interest rate decisions are made by the Federal Open Market Committee, which includes the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York and a rotating set of four presidents of the other 11 regional banks.
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The Fed chairman is just one vote on that committee, a limitation that Treasury Secretary Scott Bessent recently emphasized in what appeared to be an attempt to calibrate expectations about what Powell’s replacement might ultimately achieve.
Kevin Hassett, a longtime ally of the president and currently director of the White House National Economic Council, is seen as the favorite to replace Powell. Kevin Warsh, a former Fed governor, and Christopher Waller, an acting governor, are also among those being considered.
Trump, who is close to making his choice, has not shied away from expressing what he expects from her.
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“I’m looking for someone who will be honest with interest rates,” Trump said on Wednesday, 10, after criticizing the Fed’s rate cut as too small and attacking Powell personally. “Our rates should be the lowest in the world,” he added.
But the Fed’s most recent meeting underscored how much resistance the next president could face if he appears to be merely doing the president’s bidding rather than doing what is most appropriate for the economy.
“If the next president comes in with a specific agenda that is not consistent with the economic backdrop, I think that person loses ground immediately,” said Tom Porcelli, chief economist at Wells Fargo.
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Porcelli sees little room next year for substantially lower financing costs, given that “this is not an economy that is heading towards a recession.” Instead, he expects next year’s scenario to call for two reductions of 0.25 points, in March and June.
Matthew Luzzetti, chief U.S. economist at Deutsche Bank, sees even less room for the central bank to cut next year.
He projects just a 0.25 point reduction, and not before September, based on expectations that growth will accelerate, the job market will stabilize and inflation will remain resilient. That combination should make the committee “reluctant” to cut interest rates, he said.
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Trump would certainly oppose such a gradual pace of cuts, risking an escalation in his attacks on the institution, which operates independently of the White House.
This year, Trump has repeatedly threatened to fire Fed officials and is now embroiled in a legal battle with a governor, Lisa Cook, whose case over his attempted removal will be heard by the Supreme Court in January.
Recently, the president tested a new way of undermining officials, claiming without evidence that his predecessor, Joe Biden, may have improperly installed four governors on the council.
But even more intense pressure from the president is unlikely to sway the Fed’s current cadre of officials, as evidenced by the vocal opposition of some policymakers who worry about inflation getting stuck above the Fed’s 2% target.
“It’s complicated because of the way the White House has been putting pressure on the Fed,” said Lael Brainard, a former Fed vice chair who most recently served as the Biden administration’s top economic adviser.
“Some committee members may feel they need to make clear that they will not be pressured and that the Fed’s independence is a valuable institutional attribute to preserve and defend.”
What risks emerging is a much more fragmented Fed that has difficulty delivering a cohesive message about the policy path ahead, Brainard warned.
“It is already difficult to communicate monetary policy in a way that is accessible to the general public, and a pattern of constant dissent makes this even more complicated,” she said.
“This is a real loss for the general public and could cause an erosion of trust in the institution, which is really damaging.”
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