The Fed has had a rather unusual year, to say the least. The president’s tariffs raised inflation expectations just as the labor market began to show signs of weakening. The Federal Reserve’s final meeting of the year precedes a turbulent 2026 that will bring changes, including the arrival of a new leader appointed by President Donald Trump. The new head will have his independence tested amid legal and political pressures. Jerome Powell’s tenure is ending, ushering in a new era.
Powell enjoyed bipartisan support in two confirmation votes for the chairmanship
Federal Reserve Chairman Jerome Powell’s term ends in May, and Trump is expected to announce his successor early in the new year. The Federal Reserve is expected to announce a third consecutive interest rate cut on Wednesday at its final meeting of a year in which the central bank, its chairman, and a key official were frequent targets of President Donald Trump’s ire. Powell enjoyed bipartisan support in two confirmation votes for the chairmanship, winning 84-13 when Trump first appointed him in 2018 and 80-19 in 2022, when he was reappointed by former President Joe Biden.
This is a time of change, given the Federal Reserve’s complex power structure. It has a seven-member board of directors, whose members are nominated by the chairman and confirmed by the Senate, which oversees the system. The new era will begin with a shortlist that includes the chairman’s chief economic advisor, Kevin Hassett, and others. This nomination will initiate a series of events culminating in the new chairman’s arrival, likely in time to preside over the Federal Reserve’s June meeting.
Jerome Powell, had indicated last month that the officials who make interest rate decisions would arrive at this week’s meeting quite divided
On one side are the twelve presidents of the regional reserve banks, each with their own staff and supervisory areas; and on the other is the Federal Open Market Committee (FOMC), responsible for setting interest rates, which includes the governors and five of the reserve bank presidents, four of whom rotate voting rights every two or three years. Separately, the head of the central bank, Jerome Powell, had indicated last month that the officials who make interest rate decisions would arrive at this week’s meeting quite divided. Some at that time favored keeping the benchmark rate unchanged, while others favored another cut.
The situation worsened with the arrival of a Trump ally to the Fed board
Regarding the new Federal Reserve leader, recent interest rate decisions have already revealed divisions among the various factions. The Senate Banking Committee will hold a hearing to evaluate the nominee, followed by a confirmation vote in the full Senate. In addition to the usual schedule of meetings and policy debates, which have already generated deep divisions over the risks facing the economy and the appropriate policy response, the first few months of 2026 are set to be particularly busy. Several reserve bank presidents are among the most vocal opponents of rate cuts due to fears of inflation, and three governors appointed by Trump argue that rates should fall. In fact, the usual consensus at these meetings broke down in July, and the situation worsened with the arrival of a Trump ally to the Fed board, advocating for steeper cuts than those supported by the rest.
The Federal Reserve is one of the country’s lifebloods; it’s a government agency headquartered in Washington and a key economic driver in the United States. Most analysts expect employment to be the main focus of this meeting and for the Fed to cut the benchmark interest rate by a quarter of a percentage point for the third time, according to a CME Group forecast tracker. This would place it in a range of 3.5% to 3.75%. So, fasten your seatbelts tight because things are about to get interesting.