The Future of the Federal Reserve

Yesterday, the Federal Reserve (the Fed) met for its second-to-last meeting of the year, and, as expected, voted 10-2 to lower interest rates by 25 basis points. The two dissents were Stephen Miran (who wanted a larger rate cut) and Jeffrey Schmid (who preferred no further cuts). This follows a rate decrease the Fed approved last month of the same amount.  

Chairman Jerome Powell also made headlines yesterday by reiterating that another cut at the next meeting “is not a foregone conclusion. Far from it.” While most analyses predict there will be another decrease at the year’s final meeting of the year on December 9 and 10, Powell’s comments added some doubt. Whether the statement was made out of concern over inflation or the desire to demonstrate the continued influence of the Fed is not totally clear.  

What is certain is that Chairman Powell’s term is coming to an end early next year. No matter who President Trump chooses to replace Powell next year, we predict they will understand and follow the President’s directive to precipitously cut interest rates. Given the current construction of the Senate, President Trump’s nominee should have no trouble being confirmed next year. The President has made no secret that he wants to see rates lowered and the next Fed Chair will be someone willing to achieve that goal.  

The short list demonstrates that the President is choosing from nominees who understand their assignment. If President Trump selected someone from his inner circle – like National Economic Council Director Kevin Hassett – we have no doubt that they would begin to lower rates without necessitating further communication from the President. A similar scenario is playing out right now with President Trump’s newest Fed Board member Stephen Miran who voted against yesterday’s cut because it was not big enough. We believe the next Fed Chair will support large rate cuts and do so in a way that will not require public cajoling from President Trump. 

Shortlist for Fed Chair 

Treasury Secretary Scott Bessent confirmed earlier this week that the shortlist to replace Powell next year has been narrowed to five names. A brief overview of each candidate appears below. As a reminder, any nominee would need all but three Senate Republican votes in order to secure the nomination. We have listed the candidates in order of likelihood they will be chosen, based on our analysis: 

Kevin Hassett: Hassett is the current Director of the National Economic Council, and served in the first Trump Administration, first as Chairman of the Council of Economic Advisors and then as a Senior Advisor. His ties to the Administration make him a likely pick, particularly as Trump seeks greater influence over the Fed’s decision-making. One need only look at the recent nomination of Stephen Miran (who took a leave of absence from heading the Council of Economic Advisors to serve as the newest Federal Reserve Governor) to see that Trump is hoping to install more allies on the Fed. Hassett has been supportive of rate cuts, but has also been vocally supportive of Fed independence, which will help him in any nomination hearing where the issue is expected to be heavily highlighted. Notably, the only Republican to vote against Miran’s nomination was Senator Lisa Murkowski (R-AK), based on concerns regarding Fed independence.  

Christopher Waller: Waller currently serves on the Board of Governors and has been one of the most vocal proponents of interest rate cuts this year, previously calling for a cut of 125-150 basis points over the summer. He has also dismissed the impact of tariffs on inflation, a move that was likely seen as favorable by the White House. However, he recently cautioned against an aggressive approach to interest rates, a potential sign that he is moderating his position as he gets closer to a potential nomination. Waller’s original confirmation earned the support of all Republican senators present, with the exception of Senator Rand Paul (R-KY).

Kevin Warsh: Warsh previously served on the Board of Governors, originally nominated by former President George W. Bush in 2006. Warsh resigned in 2011. Warsh has been critical of the Fed, particularly under Powell’s leadership, and has advocated further cuts to interest rates. He has argued for reforms at the Fed, including at the staff level, and accused the institution of “mission creep.”  

Rick Rieder: Rieder is the private sector pick for the Fed role, currently serving as Chief Investment Officer of Global Fixed Income at BlackRock. He has served as Vice Chairman and member of the Borrowing Committee for the U.S. Treasury and member of the Federal Reserve’s Investment Advisory Committee on Financial Markets. Rieder has also called for larger interest rate cuts, in line with President Trump’s priorities. Additionally, Rieder could be seen as an “outsider” candidate who would be comfortable making larger, more structural changes to the Fed, which Bessent has indicated is a priority for the Administration. 

Michelle Bowman: Bowman also currently serves on the Board of Governors, and, like Waller, has been supportive of the Fed cutting interest rates. She joined Waller in July to support an interest rate cut, despite being outvoted by her colleagues. Her nomination in June to serve as Vice Chairman for Supervision of the Board of Governors passed with all Republicans present voting in favor.