The United States Federal Reserve concludes its annual cycle of meetings this week, just before 2026, which has been described as a period of high turbulence. Attention is focused on the end of the current Fed Chairman Jerome Powell’s term in May 2026, opening the door for a new leader. It is expected that President Donald Trump will announce his successor early in the year, with names such as his top economic advisor, Kevin Hassett. Confirmation of the new chairman requires a Senate vote, and it is expected to be closer than Powell’s previous confirmations (84-13 in 2018 and 80-19 in 2022), given recent political tensions and the narrow approval of Governor Stephen Miran by 48-47 votes.
In addition to the change in leadership, it faces issues regarding its independence, including the legal battle over the removal of Governor Lisa Cook, and the growing scrutiny over the selection process for the presidents of the 12 regional Fed banks. These factors, along with the deep internal divisions already visible in the Federal Open Market Committee (FOMC), will shape monetary and regulatory policy in the coming months.
Federal Reserve in 2026
2026 will be a year of much tension and change at the Federal Reserve (Fed). Among all the open fronts, the appointment of the new Fed chairman by Trump is the immediate priority. Once chosen, he will have to go through the Senate Banking Committee’s validation process, undergoing an investigative hearing. Subsequently, the nominee will be subjected to a confirmation vote in the full Senate. If the deadlines stipulated in the schedule are met, the new head of the Central Bank will be in charge of the institution for its June monetary policy meeting.
This process will need to take place because the term of the current president of the Fed, Jerome Powell, ends in May. After being promoted for the first time in 2018 by Trump, he enjoyed strong support and bipartisan backing in both confirmation votes for the position: 84-13 the first time, and 80-19 in 2022, when he was reappointed by former President Joe Biden. Among the list of candidates behind him is his chief economic advisor Kevin Hassett, who is expected to face a much closer vote, in response to the administration’s intent to directly influence the Fed, and due to the broad support that the Central Bank’s independence has received from elected legislators.
Federal Reserve System
The Federal Reserve has a system consisting of a Board of Governors with seven members in Washington D.C., 12 presidents of regional reserve banks, and the Federal Open Market Committee (FOMC), which sets interest rates with the votes of the governors and five of the rotating regional presidents. Although Trump’s intention is to appoint a chief, it is expected that rate cuts will occur quickly, since a large portion of the votes have “hawkish” arguments, that is, to control inflation. Additionally, to carry out more significant changes, the Board of Governors in Washington needs a majority of votes, but Trump will have only appointed three of the seven positions, leaving it at a disadvantage.
The Cook case
With the aim of eliminating opposing votes and obtaining another vacant position, President Trump has attempted to dismiss Governor Lisa Cook, whose term extends until 2038. After taking the matter to court, the Supreme Court has allowed her to remain in office until the case is resolved. The Supreme Court is expected to hear the case in January, and its ruling will be crucial because it will affect the independence of the Central Bank and Trump’s power over monetary policy.
Regional Banks
Simultaneously with everything mentioned, Treasury Secretary Scott Bessent has been questioning how the presidents of regional banks are chosen. According to him, many of the current regional leaders were hired from outside the areas of the country they are supposed to represent. The Board of Governors in Washington could dismiss regional presidents at will if they have a majority of votes, which could open the door to exerting pressure on their decisions regarding interest rate hikes or cuts.
Frequently asked questions
Why was Cooked fired?
Because Trump wants to get rid of opposing votes and secure vacant positions within the Fed.
How is the Fed system composed?
- A Board of Governors (seven people) in Washington.
- 12 presidents of regional banks from different parts of the country.
- The Federal Open Market Committee (FOMC), which is the group that votes to decide whether to raise or lower interest rates (it includes the governors and 5 of the regional presidents, who rotate).