What will Powell do after Trump takes office? Interest rate cuts or a slowdown, the next Federal Reserve Chair "seed candidates" call for leadership neutrality

Although Federal Reserve officials have always touted their decision-making as "insulated" from politics, for Federal Reserve Chairman Jerome Powell, Trump's election means new troubles are on the horizon. This is because Trump has previously liked to "point fingers" at the Fed, believing that the president has a say in this matter. The policies Trump promised during his campaign could also overturn the economic outlook for the United States and change the Fed's policy considerations in the coming months.

Trump has promised to take more aggressive tariff measures against U.S. trading partners, expel millions of illegal immigrants, and extend the tax cuts from 2017. In October of this year, 23 scholars who have received the Nobel Prize in Economic Sciences, including this year's two laureates, issued a joint letter supporting Harris. Their main reason for opposing Trump's election is that the tariffs he advocates and the tax cuts he proposes will lead to rising prices, an expanding government deficit, and increased domestic inequality.

Derek Tang from LH Meyer/Monetary Policy Analytics believes that the decision-makers will be more cautious in handling when and how much to cut interest rates, as they need to assess how Trump's economic plans will be implemented. Tang said:

"Marginally, they (the Fed decision-makers) may think that in the coming years, tariffs or reduced immigration could bring higher inflation risks. Their mindset might be, 'By slightly slowing down the pace of interest rate cuts, we can give ourselves more time to observe inflation expectations and the actual situation in the labor market.'"

Analysts at Bank of America Merrill Lynch reported this Tuesday that if Trump takes office and implements fiscal expansion, the Fed may raise its expectations for the neutral interest rate. Additionally, if Trump significantly raises tariffs, the Fed may pause interest rate cuts due to concerns about the impact on inflation and economic growth.

Journalist Nick Timiraos, known as the "new Fed correspondent," wrote after Trump's victory that Trump's election will not currently affect the Fed's stance on monetary policy unless the Fed fully understands Trump's specific measures in domestic taxation, tariffs, and immigration policy. If the Republican Party secures both houses of Congress, the Fed may "begin to revise some fundamental assumptions" at its meeting in December.

Trump's Public Criticism May Raise Questions About the Fed's Independence

In August of this year, Trump stated that the U.S. president should have some say over interest rates and monetary policy, criticizing the Fed for adjusting rates as "either a bit too early or a bit too late." He later suggested that the Fed's decision to cut rates by 50 basis points in September was politically motivated. In October, he again said that he believes he should not order the Fed to do anything, but he has the right to comment on the direction of interest rates Bloomberg reports that Trump's policies complicate the Federal Reserve's future work, as the Fed seeks to bring inflation back to its 2% target while considering the labor market. If Trump publicly attacks Powell again as he did before, the Fed may find itself under an unsettling political spotlight, especially given the delicate position it is already in to achieve its goals.

A series of Trump's statements have led to speculation that he may attempt to limit the Fed's autonomy if he returns to power. The report mentions that legal scholars have pointed out that Trump considered firing Powell during his first presidential term, an unprecedented action that would provoke legal controversies.

Sarah Binder, a political science professor at George Washington University, believes that the president's public criticism of the Fed could raise doubts externally. The Fed is structurally independent, but "if people start to question whether the Fed will act as it says it will, then no degree of structural separation can protect it."

Former Trump Chief Economic Advisor Hassett May Become Next Fed Chair

Kevin Hassett, who served as the chairman of the White House Council of Economic Advisers during Trump's presidency, stated that skepticism about coordination between the Fed and the executive branch should be taken seriously, and "the next administration should choose a neutral Fed leadership."

Wall Street Journal mentioned that even as President of the United States, Trump has limited ways to control the Fed. The president has the authority to nominate candidates for Fed chair, but the final decision rests with the Senate, and the Constitution grants the Fed a high degree of independence; the president cannot simply dismiss its chair due to policy disagreements. If the president insists on firing someone, a clear court ruling may also be required.

The president can also influence monetary policy by nominating the seven members of the Fed's Board of Governors, which is the most direct way Trump could influence the Fed in the coming years. These nominations also require Senate confirmation, and the process of replacing members is intentionally designed to be slow.

Powell's term as Fed chair will end in May 2026, and his governor position will expire in January 2028. Fed Governor Adriana Kugler's term will end in January 2026. Trump will have the opportunity to appoint candidates for these positions in the next four years.

Bloomberg reports that several sources close to Trump's campaign team indicate that Hassett may be the candidate Trump ultimately chooses to nominate as the next Fed chair.

Additionally, Fed Vice Chair for Supervision Barr's term will end in July 2026. Barr's initial proposal for new banking regulations required banks to increase their capital by 16%, which faced criticism from the banking industry and Republicans.

Michael Feroli, Chief U.S. Economist at JP Morgan, noted in an October research report that if Barr resigns quickly after a president from the opposing party takes office, Trump could swiftly influence regulatory policy, even if he cannot directly affect monetary policy