Will the Fed's interest rate decision exceed expectations? Trump's personnel arrangements hold a major plank.
2025-09-15 16:30:54
As the United States' central bank, the Federal Reserve controls key monetary policy tools, including setting the federal funds rate and regulating market liquidity. Its decisions directly impact U.S. financing costs, asset prices, and even global capital flows, making it a key influencer of global financial markets. While its policy effectiveness is constrained by economic cycles, the composition and policy orientation of the Federal Reserve Board remain key variables in market predictions about the path of interest rates. This article examines recent Fed personnel changes and suggests potential unexpected developments in future interest rate decisions.
The Trump administration is currently reshaping the Federal Reserve's decision-making structure through a series of personnel moves, paving the way for a policy shift.
Lisa Cook's departure was no accident—she was under criminal investigation by the US Department of Justice for fraudulent mortgage applications (falsely claiming investment properties as "primary residences" to obtain lower interest rates). Trump's dismissal of Cook for "good cause" not only avoided public controversy but also directly eliminated a relatively neutral voice on the board, freeing up space for his trusted aides.
Nominating Stephen Milan to fill the seat, aligning with the administration's demands: Trump nominated Stephen Milan, current chairman of the White House Council of Economic Advisers, to fill Cook's seat on the board, allowing Milan to retain his White House position while serving on the Federal Reserve Board. This arrangement breaks the traditional isolation of the Federal Reserve from the executive branch, meaning that future monetary policymaking will be more directly aligned with the Trump administration's economic demands (such as stimulating the economy through easing), further weakening policy independence.
The 2026 Chair race has begun, securing long-term leadership: Powell's term as Fed Chair expires in May 2026, and Trump has already begun screening candidates. The initial list includes Kevin Walsh (a former Fed governor with an accommodative policy bias), Christopher Waller (a current governor with close ties to the Trump campaign), and Kevin Hassett (current Director of the White House National Economic Council, a former advocate of low interest rates to stimulate growth). All three candidates align closely with Trump's policy preferences. If elected, they would ensure the Board's long-term tilt toward an accommodative policy.
If all the above personnel operations are implemented, the Trump camp will occupy four seats on the seven-member Federal Reserve Board (the current two confidants Bowman and Waller, and Garmillan and the new chairman), forming an absolute decision-making dominant force - this structure will directly change the policy balance of the Federal Reserve and pave the way for radical easing.
It's worth noting that the next midterm election during Trump's term will be held on November 3, 2026. The nomination of the Federal Reserve chairman and the selection of the Federal Reserve Board of Governors coincide with the crucial six months before the election. The US president may manipulate the Fed to implement loose monetary policy before the election to stimulate economic growth and boost employment figures, thereby winning voter support for the Republican Party. This strategy mirrors Nixon's pressure on the Fed to cut interest rates before the 1972 election: both attempts to turn monetary policy tools into political bargaining chips in electoral games.
Previously, the market's general expectation for the Federal Reserve to cut interest rates next year was "2-3 times, 25 basis points each time, and a full-year rate cut of 50-75 basis points." However, combined with the tilted trend in the Board of Governors' personnel layout, this expectation may be exceeded.
The interest rate futures market was the first to react: the current interest rate futures market has begun to revise up its expectations for interest rate cuts next year - the previously implied probability of "three interest rate cuts throughout the year" has risen from 50% to 70%, and the probability of "four interest rate cuts throughout the year" (a total of 100 basis points) has also risen from 20% to 45%. If Milan's nomination is successfully approved by the Senate, this expectation will be further strengthened.
U.S. Treasury yields have fallen ahead of schedule, and the curve has steepened: the 10-year U.S. Treasury yield has recently dropped from 4.3% to 4.0%, partly reflecting the pricing of "unexpected rate cuts"; as expectations rise in the future, long-end yields (such as 10-year and 30-year) will decline more slowly than short-end yields, pushing the Treasury yield curve toward "steepening", which is a typical signal that the market is digesting long-term easing in advance.
Risk assets and the US dollar came under pressure and then diverged: In the short term, the expectation of an "unexpected rate cut" will drive a temporary rise in US stocks (especially growth stocks), as lower financing costs are good for corporate profits; but in the medium to long term, if the rate cut is accompanied by a confirmed economic recession, US stocks may fall again due to downward revisions to earnings.
The US dollar index will continue to be under pressure - if the Federal Reserve cuts interest rates far more than the European Central Bank and the Bank of England, the US dollar's interest rate advantage will be further weakened, driving funds to non-US currency assets.
Trump's personnel arrangements for the Federal Reserve have become the most core variable affecting the interest rate path next year. The board of governors, which controls four seats, will most likely push for an unexpected rate cut, and the market will not wait for the policy to be implemented, but will gradually price in this direction.
For investors, it is important to keep a close eye on two major signals: one is whether Stephen Milan’s nomination is successfully passed by the Senate (if passed, the probability of personnel arrangements being implemented will greatly increase); the other is whether the FOMC meeting minutes contain statements such as “paying attention to economic downside risks” and “preparing to use more forceful policy tools” (if so, it will directly verify the possibility of an unexpected interest rate cut).
Ultimately, the Fed's current policy stance is no longer determined solely by economic data; the shift in personnel structure is reshaping the policy logic. If this approach pans out, they will control four seats on the seven-member Fed Board. We can expect interest rate cuts exceeding market expectations next year, and the market may be pricing in this direction in advance.
Trump's personnel operations: Full control of the key layout of the Federal Reserve Board
The Trump administration is currently reshaping the Federal Reserve's decision-making structure through a series of personnel moves, paving the way for a policy shift.
Lisa Cook's departure was no accident—she was under criminal investigation by the US Department of Justice for fraudulent mortgage applications (falsely claiming investment properties as "primary residences" to obtain lower interest rates). Trump's dismissal of Cook for "good cause" not only avoided public controversy but also directly eliminated a relatively neutral voice on the board, freeing up space for his trusted aides.
Nominating Stephen Milan to fill the seat, aligning with the administration's demands: Trump nominated Stephen Milan, current chairman of the White House Council of Economic Advisers, to fill Cook's seat on the board, allowing Milan to retain his White House position while serving on the Federal Reserve Board. This arrangement breaks the traditional isolation of the Federal Reserve from the executive branch, meaning that future monetary policymaking will be more directly aligned with the Trump administration's economic demands (such as stimulating the economy through easing), further weakening policy independence.
The 2026 Chair race has begun, securing long-term leadership: Powell's term as Fed Chair expires in May 2026, and Trump has already begun screening candidates. The initial list includes Kevin Walsh (a former Fed governor with an accommodative policy bias), Christopher Waller (a current governor with close ties to the Trump campaign), and Kevin Hassett (current Director of the White House National Economic Council, a former advocate of low interest rates to stimulate growth). All three candidates align closely with Trump's policy preferences. If elected, they would ensure the Board's long-term tilt toward an accommodative policy.
If all the above personnel operations are implemented, the Trump camp will occupy four seats on the seven-member Federal Reserve Board (the current two confidants Bowman and Waller, and Garmillan and the new chairman), forming an absolute decision-making dominant force - this structure will directly change the policy balance of the Federal Reserve and pave the way for radical easing.
It's worth noting that the next midterm election during Trump's term will be held on November 3, 2026. The nomination of the Federal Reserve chairman and the selection of the Federal Reserve Board of Governors coincide with the crucial six months before the election. The US president may manipulate the Fed to implement loose monetary policy before the election to stimulate economic growth and boost employment figures, thereby winning voter support for the Republican Party. This strategy mirrors Nixon's pressure on the Fed to cut interest rates before the 1972 election: both attempts to turn monetary policy tools into political bargaining chips in electoral games.
Policy prediction under personnel leadership: next year may usher in an unexpected interest rate cut
Previously, the market's general expectation for the Federal Reserve to cut interest rates next year was "2-3 times, 25 basis points each time, and a full-year rate cut of 50-75 basis points." However, combined with the tilted trend in the Board of Governors' personnel layout, this expectation may be exceeded.
The interest rate futures market was the first to react: the current interest rate futures market has begun to revise up its expectations for interest rate cuts next year - the previously implied probability of "three interest rate cuts throughout the year" has risen from 50% to 70%, and the probability of "four interest rate cuts throughout the year" (a total of 100 basis points) has also risen from 20% to 45%. If Milan's nomination is successfully approved by the Senate, this expectation will be further strengthened.
U.S. Treasury yields have fallen ahead of schedule, and the curve has steepened: the 10-year U.S. Treasury yield has recently dropped from 4.3% to 4.0%, partly reflecting the pricing of "unexpected rate cuts"; as expectations rise in the future, long-end yields (such as 10-year and 30-year) will decline more slowly than short-end yields, pushing the Treasury yield curve toward "steepening", which is a typical signal that the market is digesting long-term easing in advance.
Risk assets and the US dollar came under pressure and then diverged: In the short term, the expectation of an "unexpected rate cut" will drive a temporary rise in US stocks (especially growth stocks), as lower financing costs are good for corporate profits; but in the medium to long term, if the rate cut is accompanied by a confirmed economic recession, US stocks may fall again due to downward revisions to earnings.
The US dollar index will continue to be under pressure - if the Federal Reserve cuts interest rates far more than the European Central Bank and the Bank of England, the US dollar's interest rate advantage will be further weakened, driving funds to non-US currency assets.
Personnel may become a core variable, and pricing needs to focus on two major signals
Trump's personnel arrangements for the Federal Reserve have become the most core variable affecting the interest rate path next year. The board of governors, which controls four seats, will most likely push for an unexpected rate cut, and the market will not wait for the policy to be implemented, but will gradually price in this direction.
For investors, it is important to keep a close eye on two major signals: one is whether Stephen Milan’s nomination is successfully passed by the Senate (if passed, the probability of personnel arrangements being implemented will greatly increase); the other is whether the FOMC meeting minutes contain statements such as “paying attention to economic downside risks” and “preparing to use more forceful policy tools” (if so, it will directly verify the possibility of an unexpected interest rate cut).
Ultimately, the Fed's current policy stance is no longer determined solely by economic data; the shift in personnel structure is reshaping the policy logic. If this approach pans out, they will control four seats on the seven-member Fed Board. We can expect interest rate cuts exceeding market expectations next year, and the market may be pricing in this direction in advance.
- Risk Warning and Disclaimer
- The market involves risk, and trading may not be suitable for all investors. This article is for reference only and does not constitute personal investment advice, nor does it take into account certain users’ specific investment objectives, financial situation, or other needs. Any investment decisions made based on this information are at your own risk.
