Divisions at the Fed Are Growing: New Chair at Risk

Fed Disagreements and Challenges for the New Chair

The disagreements between the inflation and employment targets at the U.S. Federal Reserve (Fed) indicate a deepening problem in the upcoming period. Economic experts suggest that this situation could pose serious challenges for the newly appointed Fed chair and expect conflicts to continue until 2026.

Expert Opinions: Interest Rate Cuts and Future Scenarios

Matthew Luzzetti, chief economist at Deutsche Bank, reported that current Fed Chair Jerome Powell managed to achieve consensus on three interest rate cuts this year despite the division within the committee. However, he emphasized that if inflation remains high and the labor market remains weak, the likelihood of the new chair being able to secure a similar consensus is low.

Luzzetti stated, “The most likely scenario will be the continuation of interest rate cuts. However, there is also a risk of a committee emerging that demands interest rate hikes in the coming days.”

Discussions on Independence and Management Challenges

Ian Wyatt, chief economist at Huntington Bank, noted that achieving consensus within the Fed is becoming increasingly difficult and stated that the new chair would face a significant management test if they hold views that differ from the general trend of the committee.

Trump's Economic Policies and the Future of the Fed

During President Donald Trump's administration, the Fed adopted a wait-and-see policy as it entered 2025. Fluctuations in tariff rates 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 chair will have to cope with these risks.

Furthermore, Federal Reserve member Lisa Cook's removal and Adriana Kugler's resignation during the summer triggered a new period of uncertainty in the management of the central bank. The temporary appointment of Stephen Miran, President Trump’s Chair of the Council of Economic Advisers, reignited discussions regarding the independence of the Fed.