The leading candidate to head the Federal Reserve System could already disappoint President Donald Trump – even before being officially named to the top post at the central bank.

Trump demanded a decisive cut in interest rates next year, but the Fed signal points to a more cautious course: during a meeting with former Fed Chair Kevin Warsh to discuss the candidacy, Fed officials struck one rate cut for 2026.

The president continues to insist that rates should be significantly lower, even calling the third consecutive quarter-point cut “too small.” A new Trump statement at the start of the week suggested that the person he names to lead the Fed would undoubtedly cut rates.

However, it isn’t just one person who decides – rate cuts in the coming year look difficult given the 2026 economic outlook and differences within the rate-setting committee.

The term of Jerome Powell expires in May; last week Trump said he expects to appoint a successor “at the beginning of next year.” Meanwhile, former favorite – director of the National Economic Council Kevin Hassett – yielded position, but Trump’s interview with Warsh indicates that the position is not guaranteed specifically for Hassett.

The chair of the Fed is influential but not absolute: monetary policy decisions are not made by a single person, as the Fed follows rules and acts within the framework of federal law.

Monetary policy is formed by the Federal Reserve Open Market Committee (FOMC), which consists of thirteen members accountable to Congress. The Fed chair usually serves as the chair of the FOMC, but bears responsibility for the collective decision of the colleagues who regulate rates.

The chair controls the meeting agenda, but at the end of their work his or her task is to persuasively argue to the FOMC members in support of the policy they consider best.

– Bill English

The FOMC Structure and Its Influence on Fed Independence

The FOMC includes seven members of the Federal Reserve Board appointed by the president; the president of the Federal Reserve Bank of New York and four other regional bank presidents participate in rotating votes each year. The Fed also includes 12 regional banks, including the New York Fed.

Investors and economists generally regard this structure as one of the main guardrail barriers that shield the Fed from political pressure, since it is an independent agency that is accountable to Congress, not the president.

If President Trump appoints a new Fed chair who is more inclined to lower interest rates, this could influence the Fed’s tone at the margins.

– Bill Adams

Fed officials often emphasize that their policy depends on data. At the moment there are no compelling grounds for sizable rate cuts, based on the available economic information.

Usually the Fed lowers rates after a weak labor market, when inflation is falling, or as a combination of these factors. Currently the priority is to support a strong labor market, rather than actively stimulating the economy with cheap borrowed funds.

According to the latest economic forecasts released midweek, Fed officials expect the unemployment rate next year to stay around 4.4%, and inflation to be above the 2% target. They also revised their 2026 GDP growth forecast compared with September, underscoring caution about stimulating the economy through rate cuts.

“The baseline trajectory looks like stable growth next year,” Jerome Powell said this week, referring to the potential benefits of tax-and-spending policy and continued investment in artificial intelligence.

A few Fed members believe the economy does not need substantial cuts next year, and their use could undermine the gains in taming inflation after its peak in previous years.

On Wednesday, Federal Reserve Governor for Kansas City Jeffrey Schmied again spoke out against the latest rate-cut decision, as did Austan Goolsbee, president of the Chicago Fed.

Moreover, six policymakers expressed that the range for the federal funds rate should stay at 3.75%–4%, i.e., no easing in the current year, which means that further cuts may depend on events next year.

“The Fed has not closed the door on further declines,” said Ellen Zentner, chief U.S. economist at Morgan Stanley Wealth Management, in a note to analysts on Wednesday. “But Powell has raised the bar for further action.”

– Ellen Zentner