How Trump Can Shape the FOMC in 2026

With the government finally re-opening, we should begin getting data again in the weeks ahead. I’ll use this last week of the data void to describe the Game of Thrones stuff we’ve got going on at the Fed over the next six months. 

Last Week This Morning

• 10T: 4.15%
• 2T: 3.61%
• SOFR: 4.00%
• Term SOFR: 3.96%
  
  

FOMC Voting Composition – 12 Members

Each vote counts the same. In the event of a tie, there is no change to monetary policy. There has never been a tie, but this is usually avoided by the Chair voting last. It is believed that on a couple of occasions Greenspan voted a certain way to avoid a tie.

7 Board of Governors

Each Governor serves a 14 year term (staggered). They are appointed by the President and confirmed by the Senate. Republicans currently have a 53-47 majority. The Fed Chair must come from one of the existing 7 Board of Governors. Miran’s term expires in January and that seat is the one Trump must fill if he wants the next Fed Chair to be someone not already on the Board of Governors.

Regional Bank Presidents

The remaining 5 seats are filled by regional bank presidents. There are 12 regional banks and each president takes a rotating one year term. The exception is the NY Fed President, which always has a vote.

Dove/Hawk Spectrum

We can predict a general dove/hawk sentiment based on their comments and the rotation. In 2025, the overall sentiment was fairly neutral but is expected to lean slightly more hawkish in 2026.

If the President wants lower rates but the Fed is slated to become more hawkish in 2026…

I think the most underestimated impact of the next Fed Chair announcement is the impact they might have on inflation expectations. Powell has consistently reiterated the Fed’s commitment to 2% inflation. What if the next Fed Chairs says, “You know, I think as long as inflation isn’t a runaway train we shouldn’t obsess over a specific number.”

What’s interesting to note is that the next Fed Chair doesn’t necessarily change the voting math. That person is either Waller/Bowman OR Miran’s replacement in January. All three of those are already supportive of lower rates.

You know what does impact the voting math? What Powell does in May.

Powell will still have two years remaining on his original 14 year term. He can remain on the Board of Governors if he wants to. If he leaves, Trump gets to appoint his replacement. 

If Powell leaves, Trump is only one vote shy of a majority

• if Trump successfully ousts Lisa Cook, then he has a clear majority

If Powell stays, Trump is two votes shy of a majority

• even if Cook is ousted, Trump would still be two votes shy of a majority

The last Fed chair to stay after the end of their term as Chair was Marriner Eccles. That was so long ago that someone was actually named “Marriner”.

I think Powell will take the temperature of the room during the first half of 2026. If Cook is ousted, or if he feels more members are bending the knee to Trump, he will stay. He thought his legacy would be defined by overcoming inflation without crippling the economy, but now he might be more focused on being remembered as the guy that preserved Fed independence.

Question – are you more or less likely to help someone that calls you stupid? I get called stupid all the time, and I am definitely less likely to help those people. Maybe Powell is a bigger man than me…but maybe he wants to stick it to Trump a bit…

Fed Speeches Last Week

• Collins – “Absent evidence of a notable labor market deterioration, I would be hesitant to ease policy further, especially given the limited information on inflation due to the government shutdown… It will likely be appropriate to keep policy rates at the current level for some time to balance the inflation and employment risks in this highly uncertain environment."
• Daly – “To my mind, it's premature to say definitely no cut, or definitely a cut… I have an open mind, but I haven't made a final decision on what I think."
• Kashkari - “The anecdotal evidence and the data we got just implied to me underlying resilience in economic activity, more than I had expected.” "I can make a case depending on how the data goes to cut, I can make a case to hold, and we’ll have to see…"
• Musalem – “We need to proceed and tread with caution, because I think there’s limited room for further easing without monetary policy becoming overly accommodative.” “We need to continue to lean against above target-inflation while providing some support to the labor market.”
• Hammack – “On balance, I think we need to remain somewhat restrictive to continue putting pressure to bring inflation down toward our target… To maintain a restrictive stance of policy, we need to keep rates around these levels.”

The Week Ahead

Slow trickle of data, some of which will be incomplete. If the data was bad before now, I don’t know how we can trust it over the next month or two as the surveys get ramped up again.