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- The Federal Reserve strengthened its independence by reappointing 11 of 12 regional bank presidents, closing a potential loophole for political influence before Jerome Powell’s term expires in May 2026.
- Fed policymakers have announced just one additional rate cut in 2026, despite pressure from the Trump administration, which is calling for faster rate cuts to support the economy.
- Trump proposed “THE TRUMP RULE,” requiring lower interest rates even when the market performed well, but the Fed’s decisions remain data-driven, with an emphasis on controlling inflation over market performance.
- Market reactions show that strong economic data is reducing expectations for upcoming rate cuts, while mortgage rates are influenced more by investor demand than by the Fed’s short-term rate moves.
An AI tool created this summary, based on the text of the article and checked by an editor.
The next Fed chairman may be more receptive to the president’s calls for rate cuts, but he will have to convince other central bank policymakers to give up their independence.
The Federal Reserve resisted pressure from the Trump administration during Jerome Powell’s last full year as chairman, maintaining its independence and waiting to cut rates until policymakers at the central bank saw a rise in unemployment that outweighed the risk of a resurgence in inflation.
While Powell’s term as chairman expires in May, the Fed’s board of governors this month closed an opening that the Trump administration could have exploited to undermine its independence, signing off on the reappointment of 11 of the Fed’s 12 regional bank presidents.
That’s what Fed watchers say that means the Trump administration may have to wait patiently for further rate cuts in 2026. In approving the third rate cut of the year on Dec. 10, Fed policymakers indicated they are likely to approve only one additional rate cut in 2026 and another in 2027.
“If I’m reading this correctly, they just made the Fed Trump-proof,” says University of Michigan economics professor Justin Wolfers posted on X of the Fed’s decision to make a jump on reappointing regional bank presidents.
That did not stop the president himself from announcing “THE TRUMP RULE” for Powell’s successor, after the news that the economy grew by 4.3 percent annually in the third quarter.
“I want my new Fed chairman to cut rates when the market is doing well, not destroy the market for no reason,” Trump said. posted on Truth Social two days before Christmas.
The 23rd of December gross domestic product report from the Bureau of Economic Analysis has left Trump rethinking the Fed’s interest rate strategy as policymakers have indicated they are inclined to wait for signs that the economy continues to cool before approving further rate cuts.
A strong jobs or GDP report could send stock indexes plunging, as investors think such news reduces the likelihood of future rate cuts — or even prompt Fed policymakers to raise rates again.
“Whenever there is good news these days, the market goes down because everyone thinks interest rates will be lifted immediately to accommodate ‘potential’ inflation,” Trump complained.
“The United States should be rewarded for SUCCESS, not brought down by it,” Trump concluded. “Anyone who disagrees with me will never become Fed Chairman!”
National Economic Council Director Kevin Hassett, a leading candidate to succeed Powell, agreed with Trump that the Fed should continue cutting rates, with AI to stimulate the economy and ease inflationary pressures.
“If you look at central banks around the world, the U.S. is way behind the curve in terms of cutting rates,” Hassett said in a Dec. 23 CNBC.Money movers’interview.
Before the Fed implemented a series of rate cuts in September based on data showing weakness in the labor market, the Trump administration was reportedly advised by outside lawyers not to try to fire Powell.
But Trump and allies like Bill Pulte, director of the Federal Housing Finance Agency, have continued to pressure Powell to cut rates more quickly or resign, with the president bluntly stating in November: “I would like to fire him.”
While Hassett appears aligned with Trump’s desire to keep cutting rates to boost the economy, that doesn’t mean the next Fed chairman will be able to convince other central bank policymakers of the wisdom of such a move.
In the 9-3 vote to cut rates on December 10, Trump’s appointee Stephen Miran stuck with a more drastic rate cut of half a percentage point. But Federal Reserve Governors Austan Goolsbee and Jeffrey Schmid voted against a rate cut in December.
The Fed’s decisions on interest rates are made by the Federal Open Market Committee (FOMC), which consists of twelve voting members: the seven members of the Board of Governors of the Federal Reserve System, plus five presidents of regional Federal Reserve banks.
If Trump succeeds in removing Biden’s appointee Lisa Cook from the board, a move temporarily stymied by the courts, he will have appointed four of the seven members of the Fed’s Board of Governors.
But while Powell is due to step down as chairman in May, he has not said whether he will exercise his right to remain as a regular board member until his term ends in 2028. And with eleven of the Federal Reserve’s twelve regional bank presidents set to serve until 2031, it is unlikely that a majority of Fed policymakers will follow “THE TRUMP RULE.”
Following the publication of the latest GDP figures, the futures markets were followed by the CME FedWatch tool estimate the probability of a Fed rate cut on January 28 at only 14 percent, down from 24 percent on December 16. Investors in futures markets, who previously bet the next Fed rate cut would come in April, now see a June rate cut as more likely.
Even if the Trump administration were able to impose its will on the Fed, rate cuts may not have the desired effect on mortgage rates and government bond yields.
While the Fed has direct control over the short-term federal funds rate — the interest rate that banks charge each other for overnight loans — long-term rates are largely determined by investor demand for Treasury bonds and mortgage-backed securities.
After the Fed approved three rate cuts totaling a full percentage point in late 2024, Mortgage rates went up in equal measure when investors saw inflation rates moving in the wrong direction.
“I suspect that not only the U.S. bond markets, but also the global bond markets would revolt quite decisively” if investors believed the Trump administration would influence Fed policy, Carol Schleif, chief strategist at BMO Private Wealth, told Reuters in August.
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