By
Derek Hamilton
September 17, 2025
We recently discussed how the US Federal Reserve
(Fed) is increasingly focused on the employment side of its dual
mandate of maximum employment and price stability. Thus, we expect the Fed to continue lowering interest rates
in the
short term. But what about next year?
While monetary policy is guided by the Fed’s dual mandate, which seeks long-term economic stability, we are concerned
rhetoric from the current administration could lead to a politicization of the Fed, driven by short-term goals. At
the
heart of the issue lies the makeup of the Federal Open Market Committee (FOMC), the governing body responsible for
setting the federal funds rate. Though the Fed is made up of seven governors and 12 regional Federal Reserve Bank
presidents, not all vote on monetary policy. The voting members of the FOMC include the seven governors, the
president
of the Federal Reserve Bank of New York, and an annual rotation of four other regional Fed presidents.
President Trump has been pressuring the Fed to lower interest rates. President Trump’s nominee for the open governor
seat has been confirmed—Stephen Miran, who will finish the rest of current term, ending January 31, 2026—and
potentially
another if Jerome Powell decides to leave when his term Fed chair expires in mid-2026. However, the administration
has
recently put additional pressure on other members of the FOMC to vacate their seats, including an attempt to fire Fed
Governor Lisa Cook. Trump has been very vocal about wanting much lower interest rates, and we worry if he is
successful
in filling the central bank with loyalists, excessive rate cuts could reignite inflation. In our opinion, this would
not
be welcomed by financial markets.
Federal Reserve Board of Governors
Sources: Official portraits pulled from Wikipedia.com
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