Trump takes the lead as the next chairman of the Federal Reserve: supports a “drastic” interest rate cut

The Zhitong Finance App learned that US President Trump said in a televised address to the nation on Wednesday night that the nominee for the next Federal Reserve Chairman will soon be announced, and that this candidate will support a “drastic” reduction in interest rates. Trump said, “I'm about to announce our next Federal Reserve Chairman. This person supports a drastic reduction in interest rates, and mortgage repayments will fall further.”

The Federal Reserve cut interest rates by 25 basis points last week, lowered the federal funds rate to 3.5%-3.75%, and Powell sent a dovish signal at the press conference after the interest rate decision was announced. However, Trump complained that the interest rate cut was “too small,” saying “US interest rates should be the lowest in the world.” Trump has previously claimed that the US interest rate should be “1%, or maybe even lower.”

Since taking office in January of this year, Trump has repeatedly accused the Federal Reserve of cutting interest rates too slowly, and has publicly criticized Powell, calling him an “idiot” and “always too late,” and threatening to dismiss Federal Reserve Chairman Powell from office. Meanwhile, Trump is seeking to strengthen control over the Federal Reserve during his second term in line with his vision of aggressive interest rate cuts — successfully getting his senior adviser Milan to serve as a Fed governor and trying to fire Federal Reserve Governor Cook. The most critical method is to select a candidate who supports his interest rate cut position to succeed Powell, who ends his term as chairman of the Federal Reserve in May next year.

When Trump announced at the end of last month that the candidate for the next Federal Reserve chairman had been decided, Kevin Hassett, director of the White House National Economic Council and Trump's chief economic adviser, was viewed as the most likely candidate to become the next chairman of the Federal Reserve. Recently, however, former Federal Reserve Governor Kevin Walsh and Federal Reserve Governor Christopher Waller have re-entered the eyes of investors. In an interview on December 12, Trump said that Walsh is the number one candidate for the next Federal Reserve chairman, and Hassett is also excellent, but the final candidate is still undecided. Additionally, Trump interviewed Waller on December 17.

According to reports, Walsh was previously on Trump's candidate list, but he wasn't the most popular one. Until after an interview with Trump last Wednesday, his status rose markedly. Trump said that Walsh told him that borrowing costs should be lower. “He thinks interest rates must be lowered, and so does everyone else I've talked to.” J.P. Morgan Chase CEO Jamie Dimon hinted that he supports Walsh as the next chairman of the Federal Reserve.

Waller, on the other hand, is still viewed as a “dark horse” or even a clearly disadvantaged candidate. On the one hand, his personal relationship with Trump isn't as close as Walsh and Hassett's relationship with Trump. On the other hand, some people close to Trump are adamant about Waller's vote to support a one-time 50 basis point cut in interest rates in September 2024 — a vote that occurred before Trump re-entered the White House. According to some of Trump's cronies, this position was viewed as “not loyal enough.”

However, Wall Street generally rated Waller highly. The reason is that he put forward some of the most logical and most well-founded arguments on interest rate cuts this year, and is seen as capable of promoting consensus in the face of differences within the Federal Reserve. Some of his views on cutting interest rates have been adopted by Powell.

On the prediction platform Polymarket, Hassett has the highest probability of winning the election — 52%, Walsh's probability of winning the election is 25%, and Waller's probability of winning is 13.2%.

Furthermore, it is worth noting that Trump once again emphasized his consistent position that the chairman of the Federal Reserve should consult with the president when formulating interest rate policies. Trump said, “We don't usually do this anymore, but in the past it was common practice, and I think it should be done. I'm an intelligent voice and I deserve to be heard.”

However, according to market participants, if Trump chooses an “obedient” US Federal Reserve chairman and supports his aggressive interest rate cut positions, it will damage the independence that the Federal Reserve is proud of. Nick Timiraos, a well-known journalist known as the “New Federal Reserve News Agency,” pointed out that a series of measures since Trump took office have threatened the independence of the Federal Reserve. This is the first time among all presidents, and Trump will have a greater chance of personally branding the Federal Reserve in 2026.

The independence of the Federal Reserve has long been regarded as one of the key factors in maintaining macroeconomic stability. However, whenever political forces try to interfere with central bank policies, they often cause inflation to get out of control or damage to market confidence. Former Federal Reserve Chairman Ben Bernanke has warned that “political interference in monetary policy may result in a bad boom-bust cycle, eventually leading to economic instability and rising inflation.”

However, even if the next chairman of the Federal Reserve chosen by Trump may help the president push for interest rate cuts, the serious differences currently existing within the Federal Reserve mean that Trump may not be able to do what he wants. A number of regional Federal Reserve presidents who do not have the right to vote this year expressed opposition to interest rate cuts at last week's policy meeting. This shows that the new chairman may face greater challenges than Powell in forging consensus. Whoever Trump chooses to replace Powell may face the challenge of not being able to control the Federal Open Market Committee (FOMC).

Calvin Tse, head of US strategy and economics at BNP Paribas, put it bluntly: “Chairman Powell has been in office for a long time and enjoys great prestige in the Federal Open Market Committee. Even under his leadership, there are still three members who disagree, and it's hard for me to imagine which new chairman of the Federal Reserve would be able to more easily obtain the unanimous approval of FOMC members.”