US President Donald Trump has made clear he wants Fed Chair Jerome Powell's successor to aggressively cut interest rates, but Wednesday's meeting showed the limits of the central bank leader's power.
The Federal Reserve cut interest rates by 25 basis points in a 9-3 decision on Wednesday, its third quarter-point cut in three months. However it also signalled it will pause after the latest reduction and expects to cut rates once in 2026.
“I think the rates for the United States, they're always the lowest in the world, because without us, there is no world. Without this economy, there's no world,” Mr Trump said.
The President's comments came as Mr Powell fielded questions on the direction of rate cuts after reducing the Fed's target range for interest rates to 3.5 to 375 per cent.
Mr Trump is expected to make his selection on who he will nominate to replace Mr Powell as Fed chair in the coming weeks. Mr Powell's term expires in May, but he can still serve out his remaining two years as a governor.
When asked if immediately lowering interest rates would be a “litmus test” for whoever the nominee will be, Mr Trump said “yes”.
White House economic adviser Kevin Hassett is seen a the front-runner to take over the position in June. Mr Trump also said he was meeting with former Fed governor Kevin Warsh later on Wednesday.
The new Fed chair will present Mr Trump with the greatest opportunity to push for greater control over the Fed. Mr Trump has spent much of the year pushing the limits of the central bank's independence through his relentless criticism of Mr Powell and his attempted removal of Fed Governor Lisa Cook, the latter of which the Supreme Court is set to rule on next year.
Dissents in the dots
The Fed's split vote on the latest rate cut showed that the next chair will not be able to move rates unilaterally.
As Fed Chair, Mr Powell is also the head of the 19-member Federal Open Market Committee that sets the nation's interest rates. There are 12 voting members: the Fed chair and the six other Fed governors, the New York Fed president and four regional presidents who serve one-year terms on a rotating basis.
The current FOMC is deeply divided on its future path, as was made evident in Wednesday's decision. Two regional Fed presidents – Austan Goolsbee of Chicago and Jeffrey Schmid of Kansas City – preferred to hold rates steady. Fed Governor Stephen Miran, whom Mr Trump appointed to serve on a temporary basis, was the lone dissenter who preferred to cut rates by 50 basis points.
A look at the Fed's so-called dot plot showed additional “soft dissents” – meaning there were other Fed officials who would have also preferred to keep rates unchanged this week.
“That's where the conundrum comes in. While it's broadly understood this administration will nominate somebody who is dovish, today's a perfect example it will take 12 votes to change rates. You need 12 people to make that decision,” said Art Hogan, chief market strategist at B Riley Wealth.
A further look at the dot plots would also suggest that Mr Miran remains the outlier in setting interest rates at the level that Mr Trump has been advocating for.
The Fed typically moves in consensus to project credibility in their decisions, but risks to the inflation and employment sides of its mandate have officials disagreeing on which side requires greater attention.
“You just have people who have strong views. And we come together and we reach a place where we can make a decision. We made a decision today. We had – nine out of 12 supported it, so fairly broad support,” he said.
“But it's not like the normal situation where everyone agrees on the direction and what and what to do. It's more it's more spread out, and I think that's only inherent in the situation.”
