Divergences at the Fed are Growing: New President at Risk

Fed Disagreements and Challenges for the New Chairman

The discrepancies between inflation and employment targets at the Federal Reserve (Fed) indicate a deepening problem in the upcoming process. Economic experts suggest that this situation could create serious challenges for the newly appointed Fed chairman, and they expect conflicts to continue until 2026.

Expert Opinions: Interest Rate Cuts and Future Scenarios

Matthew Luzzetti, chief economist at Deutsche Bank, stated that current Fed Chairman Jerome Powell managed to achieve consensus on three interest rate cuts this year despite the board experiencing divisions. However, he emphasized that the new chairman's likelihood of achieving a similar consensus would be low if inflation remains high and the labor market stays weak.

Luzzetti said, “The most likely scenario will be continued interest rate cuts. However, there is also a risk of a board emerging that demands interest rate increases in the coming days.”

Independence Debates and Management Challenges

Ian Wyatt, chief economist at Huntington Bank, noted that achieving consensus within the Fed is becoming increasingly difficult, stating that the new chairman will face a serious management test if they hold views different from the general trend of the board.

Trump's Economic Policies and the Future of the Fed

The Donald Trump era led the Fed to adopt a wait-and-see approach as it entered 2025. Fluctuations in tariffs and the impacts of immigration policies complicated the Fed's economic assessments. Trump's reactions towards Powell raised concerns about the Fed's independence, and the newly appointed chairman will have to deal with these risks.

Additionally, the removal of Fed member Lisa Cook and the resignation of Adriana Kugler over the summer triggered a new uncertainty process in the management of the central bank. The temporary appointment of Stephen Miran, head of the White House Council of Economic Advisers under Trump, reignited discussions about the Fed's independence.