Can Trump immediately lower interest rates by replacing Powell? The Federal Reserve's decision-making mechanism may become the biggest obstacle

Despite Trump's promise to nominate "someone who wants to lower interest rates" as the Federal Reserve Chair, the Fed's collective decision-making mechanism means that the new Chair will find it difficult to immediately fulfill the promise of significant rate cuts. Some investors have bet in the futures market that rates will drop immediately after current Chair Jerome Powell's term ends in May 2026. These investors sold contracts that expire before Powell's departure and bought contracts that expire after the new Chair appointed by Trump takes office. However, Fed watchers warn that this trading overlooks the actual mechanism of the central bank's rate decisions. Adjusting interest rates requires the support of a majority of the Federal Open Market Committee (FOMC) members, and the new Chair must persuade colleagues to support a rate cut. Currently, Fed officials have differing views on the prospects for rate cuts, with the main disagreement centered on the impact of Trump's tariff policies on inflation. Predictions indicate that by the end of 2026, the upper limit of the federal funds rate could be between 2.75% and 4.25%. Collective Decision-Making Limits Chair's Power New York University economics professor Mark Gertler points out that the Fed Chair "cannot act like a dictator." Adjusting interest rates requires the support of a majority of the FOMC, which has 19 policymakers participating in meetings, of whom 12 have voting rights. Media reports indicate that contenders for the Fed Chair position include former Fed Governor Kevin Warsh, Treasury Secretary Janet Yellen, and National Economic Council Director Kevin Hassett. Current Fed Governor Christopher Waller and former World Bank President David Malpass are also seen as candidates. These candidates have recently expressed support for rate cuts. Hassett echoed Trump's call for rate cuts on June 26, and Warsh stated in a media interview on Monday that borrowing costs should decrease. Policymakers Show Clear Disagreement Since the beginning of this year, Fed officials have agreed to keep borrowing costs in the range of 4.25% to 4.5%. However, interest rate forecasts show that policymakers have differing views on the prospects for rate cuts for the remainder of the year. Ten policymakers expect two to three rate cuts by the end of the year, leaning towards the view that the impact of tariffs on prices is temporary. Two other officials believe only one cut is necessary, while seven officials expect the benchmark rate to remain unchanged. Michael Feroli, Chief U.S. Economist at JP Morgan, stated: "Clearly, the independence of the Fed is concerning. Even for the Chair, getting the committee to agree to significant policy changes immediately may be more difficult." Trump's Camp Still Lacks Sufficient Votes Trump's new Chair nominee will not be the only one supporting rate cuts. Fed Governor Michelle Bowman has supported maintaining stable rates this year but recently indicated that a rate cut may be appropriate later this month. Another Trump-appointed official, Waller, holds a similar view. Trump may take advantage of the vacancy created by the expiration of Fed Governor Adriana Kugler's term in January to place his Chair nominee on the board. If Powell resigns from his governor position, it would create another vacancy. However, even if Powell departs, these votes would still be insufficient to push for additional rate cuts. Whether other policymakers support rate cuts will depend more on actual economic performance Deutsche Bank Securities' Senior Economist in the U.S., Brett Ryan, stated: "Ultimately, this is a decision for the committee, and whoever the next chair is must build consensus."