The U.S. Federal Reserve is heading into one of the most consequential periods in its modern history, with a swirl of political, legal, and economic forces converging as the year draws to a close. The last Fed meeting of 2025, scheduled for the week of December 9, caps off a year marked by interest rate debates, internal divisions, and mounting pressure from the White House. But the real drama is just beginning: Jerome Powell's term as Fed Chair ends in May 2026, and President Donald Trump is poised to name his successor, setting the stage for a seismic shift at the heart of American monetary policy.
According to Reuters, Trump’s search for the next Fed Chair is already in its final stages. This week, Trump and Treasury Secretary Scott Bessent are scheduled to interview former Fed governor Kevin Warsh, but administration officials say National Economic Council director Kevin Hassett is the frontrunner. As reported by the Financial Times, Hassett's alignment with Trump’s call for sharply lower interest rates has made him the favorite, though his potential appointment is stirring unease in financial circles. Hassett has openly advocated for a 50-basis-point rate cut in December—twice the size of the Fed’s most recent moves—and has pledged to run an independent, data-driven Fed. Still, investors and analysts remain wary, warning that a Hassett appointment could be viewed as a political reshaping of the traditionally independent central bank.
Hassett is not the only contender. Alongside him and Warsh, three other candidates are reportedly under consideration: Fed Governors Christopher Waller and Michelle Bowman, and BlackRock executive Rick Rieder. All five candidates share some level of support for lower rates, reflecting the pressure created by Trump’s trade policies and tariff-driven economic uncertainty. The final decision is expected before the end of 2025, with Bessent leading the vetting process. Trump has made clear he expects the Fed to change direction—and soon.
The Senate Banking Committee will play a pivotal role in the transition, holding hearings to vet the new nominee, followed by a confirmation vote in the full Senate. Powell enjoyed bipartisan support in his previous confirmations—winning by 84-13 in 2018 when Trump first promoted him, and by 80-19 in 2022 under President Biden. But the next chair may face a far closer vote, given the administration’s open efforts to influence the Fed and the broad, if sometimes uneasy, support for central bank independence among lawmakers. Trump’s most recent nominee to the Fed’s Board of Governors, Stephen Miran, was confirmed by a razor-thin 48-47 margin, with four Republicans not voting. Miran’s term ends in January 2026, and he is expected to return to his role as the head of Trump’s Council of Economic Advisers, opening a seat for the incoming chair.
The Fed’s power structure is famously intricate. It features a seven-member governing board, nominated by the president and confirmed by the Senate, as well as 12 regional reserve bank presidents. These regional presidents, who oversee large and complex organizations, participate in monetary policy debates and rotate into voting roles on the Federal Open Market Committee (FOMC). Recent rate decisions have exposed fissures between groups: several reserve bank presidents have been among the most opposed to rate cuts, citing inflation fears, while three Trump-appointed governors have argued that rates should fall. As Reuters notes, wrangling more cuts from the 12 FOMC voters may prove difficult, especially since several incoming voters have staked out hawkish positions. Ultimately, the decision may hinge on economic data, but the process is likely to take longer than Trump wants, especially with midterm elections looming in 2026.
The Fed’s influence extends well beyond interest rates. The Washington-based board can 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, require a board majority—and even with a new chair, Trump will have named only three of the seven seats, due to the staggered 14-year terms. Powell’s run as chair may end in May, but his board term extends to 2028. If Powell follows past practice, he would leave the board in May, but given the unprecedented pressure from Trump, Powell has kept his options open. Meanwhile, Vice Chair Philip Jefferson’s leadership term ends in September 2027, but his board seat lasts until 2036, and two other Biden appointees also have terms that will outlast Trump’s presidency.
One wild card is the fate of Governor Lisa Cook. Trump has taken legal action to try to fire Cook, whose term extends to 2038. She has fought the firing in court, and so far the Supreme Court has allowed her to remain in office while the matter is litigated. The high court is expected to hear the case in January 2026, and the decision will draw particular scrutiny, given its implications for central bank independence and Trump’s influence over monetary policy.
There’s also increased attention on the selection and retention of the regional bank presidents. Treasury Secretary Scott Bessent has suggested a residency requirement for these positions, noting that many current regional heads were hired from outside the areas they represent. The regional banks were originally designed as a federalist counterweight to the political and financial centers of Washington and New York. However, their modern role has evolved, with local boards of directors typically conducting national talent searches that draw leaders from the corporate sector, academia, and within the Fed itself. While Bessent said his residency proposal wasn’t meant to apply retroactively, it marks a rare Washington intervention into what has been mostly a local choice. All regional presidents are up for new five-year terms, with reappointment decisions expected early in 2026. Some legal opinions suggest the regional presidents could be fired at will by a board majority—a fact that could expose them to pressure on rate decisions.
Amid all this, the Fed’s immediate policy path remains uncertain. After cutting rates twice in the fall of 2025—by a total of 1.5% over the past 15 months—most Fed watchers expect another cut at the December 10 meeting, which would be the third in a row. Yet, as Financial Times and Reuters both note, Chair Powell has cautioned that another cut isn’t guaranteed. “People hoping for quick relief from high prices shouldn’t assume another cut is certain,” Powell said after the last meeting, signaling that internal divisions and data-dependent decision-making will continue to define the Fed’s approach in the months ahead.
The coming months promise to test the Fed’s ability to balance its mandate for stable prices and maximum employment with the political realities of a contentious election year and a changing of the guard at the very top. As the central bank faces legal challenges, political scrutiny, and internal debate, its next moves will be watched as closely as any in its history.
