By Howard Schneider
WASHINGTON, Dec 9 (Reuters) – The final U.S. Federal Reserve meeting of the year this week precedes a turbulent 2026 that will see key policymaker changes, including the arrival of a new leader to be named by President Donald Trump, and tests of its independence amid legal and political pressure.
Aside from the regular schedule of meetings and policy debates that have already spurred deep divisions about the risks facing the economy and the appropriate policy response, the first months of 2026 are crowded with personnel and other issues due to be resolved.
NEW LEADERSHIP AS OF MAY
Fed Chair Jerome Powell’s leadership term ends in May, and Trump is expected to announce a successor early in the new year. Working from a short list including his top economic adviser Kevin Hassett and others, the nomination will kick off a sequence of events leading to the new chair’s arrival likely in time to head the Fed’s June meeting. The Senate Banking Committee will hold a hearing to vet the nominee, followed by a confirmation vote in the full Senate.
Powell enjoyed bipartisan support in two confirmation votes for the chair’s job, winning by 84-13 when Trump first promoted him in 2018 and by 80-19 in 2022 when he was reappointed by former President Joe Biden.
The next chair may face a closer vote given the administration’s open efforts to influence the Fed and the broad support central bank independence has among elected lawmakers. Trump’s most recent nominee to the Fed’s Board of Governors, Stephen Miran, was confirmed 48-47, with four Republicans not voting.
A ‘TRUMP FED’ MAY TAKE LONGER
The Fed’s complex power structure can seem ungainly. It features a seven-person governing board whose members are nominated by the president and confirmed by the Senate overseeing the system; 12 presidents of the regional reserve banks with their own staff and areas of oversight; and the rate-setting Federal Open Market Committee that includes the governors and five of the reserve bank presidents, four of whom rotate into voting roles on two- or three-year cycles.
Recent rate decisions have already shown fissures among the different groups, with several of the reserve bank presidents among the most opposed to rate cuts for fear of inflation, and three Trump-appointed governors arguing rates should fall.
Wrangling more cuts from the 12 FOMC voters may be difficult, given that several of the incoming voters have staked out hawkish arguments already. The decision may ultimately depend on economic data, but in any case is likely to take longer than Trump wishes given the approach of midterm elections that will determine the control of Congress for the remainder of his time in office.
The Washington-based board has plenty of levers of influence beyond interest-rate policy, including the ability to change the central bank’s rules for public communication, set the budgets and staffing of the reserve banks, and determine how the largest banks are regulated.
Major changes, however, would require a board majority, and even with the new chair Trump will have named only three of the seven seats because of how the board’s 14-year terms are staggered. Miran’s term actually ends in January, and to open a seat for the new chair he is expected to return to his job as the head of Trump’s Council of Economic Advisers.
It’s unclear when the next board seat beyond that will come open for Trump to fill. Powell’s run as chair may end in May, but his board term extends to 2028, Trump’s last full year as president. If Powell follows past practice he would also leave the board in May. But given the unprecedented pressure the Fed has faced from Trump, Powell has kept his options open.
Similarly, current Vice Chair Philip Jefferson’s leadership term ends in September 2027, but the Biden appointee’s board seat lasts until 2036. Two other Biden appointees also have terms that would outlast Trump.
THE COOK CASE IS A WILD CARD
Trump has taken steps to try to free up an additional board seat by trying to fire Governor Lisa Cook, whose term extends to 2038.
She has fought the firing in court, and so far the Supreme Court has let her continue in office while the matter is litigated rather than allow her immediate removal as requested by Trump.
The high court is expected to hear the case in January, and the decision will draw particular scrutiny given the implications for the central bank’s independence and for Trump’s influence over monetary policy.
REGIONAL BANK PRESIDENT SELECTION PROCESS ATTRACTS SCRUTINY
While usually in the background, the selection and retention of the regional bank presidents was brought to the fore recently when Treasury Secretary Scott Bessent took interest in the fact that many of the current regional heads were hired from outside the areas of the country they ostensibly represent.
The regional banks were set up as part of a federalist structure meant to offset the influence of the country’s political and financial centers in Washington and New York.
The heads of the regional banks, however, now run large and complex organizations along with participating in monetary policy debates. They are selected by local boards of directors, typically following national talent searches that have drawn leaders from the corporate sector, academia, and from within the Fed itself.
While Bessent said his recent suggestion of a residency requirement wasn’t meant to apply retroactively, it was a rare Washington intervention into what is usually, and mostly, a local choice. The Board of Governors does oversee the regional banks, and some legal opinions suggest the regional presidents could be fired at will by a board majority – a fact that could open them to pressure on rate decisions. All are currently up for new five-year terms, with a decision on the reappointments expected early in the new year.
(Reporting by Howard Schneider; Editing by Dan Burns and Andrea Ricci )
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