Trump is expected to appoint a new chairman of The Federal Reserve (FED) by January 2026, marking the end of the Powell era.

Sources revealed to CNBC that President Trump may appoint a new chair of the Federal Reserve Board of Governors during the first week of January next year, marking the end of the Powell era. Trump is currently considering three final candidates and has made it clear that support for interest rate cuts is a prerequisite for nomination. Federal Reserve Board member Stephen Miran indicated earlier this week that he will remain in his position until Trump’s nominee is confirmed by the Senate, highlighting the sensitivity of the transition period.

Strategic Considerations for Nominations in the First Week of January

Trump chose to nominate a new Chair of the Federal Reserve Board of Governors in the first week of January, a timing that was meticulously calculated. First, January 20 is Inauguration Day, and completing the nomination before the inauguration can release clear policy signals, avoiding excessive speculation in the market about the new government's monetary policy stance. Second, the Federal Reserve's next policy meeting is scheduled for January 28-29, and if the nomination can be completed before the meeting, it will have a substantial impact on the decision-making atmosphere.

More importantly, Milan's term will expire on January 31, just after the Federal Reserve's first policy meeting in 2026. Milan has clearly stated, “If by January 31 no one has been confirmed to take my place, I think I will continue to serve.” This statement indicates that Trump's camp and the dovish forces within the Federal Reserve have reached a consensus to ensure that there will be no policy vacuum during the transition period.

From the Senate confirmation process, it typically takes several weeks to months from nomination to official appointment. If Trump nominates in the first week of January, the Senate may complete hearings and voting as early as February or March. During this period, Powell will still serve as chairman, but his influence will be severely diminished. The market will begin to reprice based on the new chairman's policy stance, and this “lame-duck chairman” status may trigger additional volatility.

Trump's actions also convey that his dissatisfaction with Powell has reached a critical point. Since Powell was nominated by Trump and took office in 2018, their relationship has remained tense. Trump has publicly criticized Powell multiple times for raising interest rates too quickly and even considered firing him. Although the chair of the Federal Reserve is legally independent, Trump effectively deprived Powell of the policy leadership for the remainder of his term by announcing a successor in advance.

Milan Dove Party's position reveals Trump’s monetary policy preferences

Since joining the Federal Reserve Board of Governors in September, Milan has been seen as the most dovish member of the decision-making team. In the three policy meetings he participated in, Milan voted against the majority each time, arguing that the rate cut should be greater than the 25 basis points supported by the majority. This steadfast dovish stance precisely reflects Trump's core demand regarding monetary policy.

Milan is taking over from Governor Kugler (Adriana Kugler), who resigned due to an accident. This seat, at the end of a 14-year term, was originally unremarkable, but Milan's performance has made him one of the most controversial figures within the Federal Reserve. He openly stated that the views of hawkish officials such as Cleveland Federal Reserve Bank President Beth Hammack are “incorrect.” This kind of public criticism of colleagues is extremely rare in the history of the Federal Reserve.

Milan stated in an interview with Bloomberg TV that he has not yet decided whether to advocate for a 50 basis point rate cut. He mentioned, “As we continue to ease policy, you will gradually enter an area where micro-management begins, rather than making significant adjustments.” This statement indicates that even though Milan's stance is dovish, he will not advocate for unlimited large rate cuts but will instead adjust dynamically based on economic data.

The evaluation of Powell by Milan is thought-provoking. He praised Powell for “successfully getting these people to agree to three consecutive rate cuts, which is as difficult as herding cats.” This seemingly complimentary yet sarcastic remark reveals the seriousness of the divisions within the Federal Reserve. According to the forecasts released after the December meeting, about one-third of the 19 policymakers believe that rate cuts are not necessary. In such a divided environment, Powell's ability to push for three consecutive rate cuts indeed demonstrates his political acumen.

Three candidates' conditions: Supporting interest rate cuts is a hard threshold

Trump is currently considering the final candidates for the chair of The Federal Reserve Board of Governors, all of whom support interest rate cuts. Trump has also made it clear that supporting interest rate cuts is one of the prerequisites for nomination. This public setting of an ideological threshold is extremely rare in the history of The Federal Reserve (FED) and severely challenges the principle of central bank independence.

Doveish Stance Priority

Supporting interest rate cuts is a hard requirement for nomination. All three candidates have clearly expressed their support for loose monetary policy, which is highly consistent with Trump's idea of “low interest rates stimulate the economy.”

Loyalty Considerations

Trump's tense relationship with Powell stems from the latter's independence. The new chairman must demonstrate a willingness to align with Trump's policies to avoid repeating Powell's mistakes.

Market Communication Ability

The Chair of the Federal Reserve Board of Governors is not only a decision-maker but also a shaper of market expectations. Candidates must possess the ability to guide the market through public speaking to avoid unexpected policy-induced turmoil.

Although the identities of the three candidates have not been fully disclosed, the market generally speculates that they may include economists, former Treasury officials, or economic advisors from Trump’s first term. The common characteristic of these candidates is their close relationship with Trump and their repeated public expressions of support for low interest rate policies.

Supporting interest rate cuts as a premise for promotion reflects Trump's extreme emphasis on economic growth. He believes that high interest rates suppress corporate investment and consumption, which is the greatest obstacle to economic growth. However, this position has potential conflicts with the current inflationary environment. After the Federal Reserve's interest rate cut in December, the target range for the benchmark interest rate has reached 3.50% to 3.75%, at the upper end of the neutral interest rate estimated by decision makers. If the new chairman continues to cut interest rates after taking office, it may reignite inflationary pressures.

Powell vs Trump's Final Showdown

Powell faces difficult choices during his remaining term. If he continues to adhere to a data-driven decision-making model, it may directly conflict with Trump’s calls for interest rate cuts, accelerating his marginalization. If he overly accommodates Trump, it will undermine the independence of the Federal Reserve and may leave a negative legacy in history.

Cleveland Federal Reserve Bank President Mester stated in an interview with The Wall Street Journal over the weekend, “My base case is that we can stay at this level of interest rates for a while until we have clearer evidence that inflation is coming down to target.” She believes the 2.7% Consumer Price Index (CPI) for November may underestimate the actual year-on-year increase due to data distortions. This hawkish stance is in stark contrast to Trump’s calls for rate cuts, indicating intense internal debates within the Federal Reserve in the coming months.