Divisions at the Fed Are Growing: New President at Risk

Fed Divisions and the Challenges for the New Chair

The discrepancies between inflation and employment targets at the Federal Reserve (Fed) indicate a deepening problem for the future. Economic experts say this situation could pose serious challenges for the new Fed chair, and they anticipate that conflicts may continue until 2026.

Expert Views: Interest Rate Cuts and Future Scenarios

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

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

Independence Discussions and Governance Challenges

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

Trump's Economic Policies and the Future of the Fed

During President Donald Trump's administration, the Fed adopted a wait-and-see approach as it entered 2025. Fluctuations in tariffs and the effects of immigration policies complicated the Fed's economic assessments. Trump's reactions to Powell increased concerns about the independence of the Fed, and the new chair will have to deal with these risks.

Additionally, the removal of Fed member Lisa Cook and the resignation of Adriana Kugler during the summer triggered a new period of uncertainty in the management of the central bank. The temporary appointment of Stephen Miran, former Chair of the White House Council of Economic Advisers, reignited discussions regarding the independence of the Fed.