Jerome Powell's term as Federal Reserve chair ends in May 2026, opening the door to greater influence from Donald Trump over the central bank. The president-elect has harshly criticized Powell and seeks to appoint a loyal successor, threatening the institution's independence. Analysts expect up to three interest rate cuts this year if inflation eases.
The US Federal Reserve begins 2026 facing an unprecedented challenge to its autonomy, driven by pressures from Donald Trump. Powell, appointed by Trump in 2018 to succeed Janet Yellen, has withstood attacks from the president, who accuses him of not cutting interest rates quickly enough to stimulate the economy, ignoring risks like tariff-induced inflation or an AI bubble.
Trump has threatened to fire Powell, even citing overruns in the renovation of the Marriner S. Eccles building, the Fed's headquarters, though advisors warned of no legal basis. Powell could remain as a governor until 2028, emulating Marriner S. Eccles, who resisted Harry Truman's interferences in the 1940s and helped solidify the central bank's independence.
Powell's successor will be announced before the end of January. Candidates include Kevin Hassett, director of the National Economic Council and loyal to Trump; Kevin Warsh, former governor; and Christopher Waller, current board member since 2020. Investors doubt Hassett due to his loyalty, which could compromise neutrality.
Trump has already placed allies on the Federal Open Market Committee (FOMC), a 12-member body responsible for monetary policy. He appointed three in his first term and now Stephen Miran, former White House economic office chief. Additionally, a Supreme Court case in late January will decide if Trump can fire Governor Lisa Cook, appointed by Biden and accused without evidence of mortgage irregularities.
"If the Court rules in Trump's favor, he and all future presidents would have much greater control over the Federal Reserve," warns Christopher Hodge, chief economist at Natixis. On monetary policy, Powell suggested a pause at the late January meeting, but analysts like Bruce Kasman of JP Morgan expect a cut depending on December's jobs report. Veronica Clark of Citi forecasts 75 basis points of cuts if inflation eases.
