President Trump wants significantly lower borrowing costs and has been clear that he expects his pick to replace Jerome H. Powell as chair of the Federal Reserve to follow through on that.
But intense divisions inside the central bank about the path forward for interest rates suggest that could be hard to deliver, setting up a challenge for whomever Mr. Trump selects for the top job.
The Fed voted on Wednesday to reduce interest rates by a quarter of a percentage point. It was the third straight cut since September, one that brought interest rates down to a range of 3.5 percent to 3.75 percent. Yet the decision was far from unanimous. Six of the Fed’s 19 policymakers expressed disapproval of the cut, indicating their preference to stand pat.
New projections for interest rates released by the central bank also highlighted how little consensus there appears to be about additional cuts next year. Seven officials forecast none, while eight wanted at least half a percentage point’s worth of cuts.
That left Mr. Powell to explain at a news conference on Wednesday that such a wide range of views was only natural at a time when the Fed’s goals of low, stable inflation and a healthy labor market are in tension. But that degree of dispersion could morph into a major impediment for the next chair, who is set to take over in May.
“I take the embrace of the diversity of views on the committee right now as a warning shot to the next chair,” said Vincent Reinhart, a former Fed economist now at BNY Investments. “The next chair has to convince his colleagues. That’s the main message.”
The Fed’s interest rate decisions are made by the Federal Open Market Committee, which includes all seven members of the Board of Governors, the president of the Federal Reserve Bank of New York and a rotating set of four presidents from the other 11 regional reserve banks. The chair of the Fed is just one vote on that committee, a limitation that Treasury Secretary Scott Bessent recently emphasized in what appeared to be a bid to manage expectations about what Mr. Powell’s replacement could ultimately achieve.
Kevin A. Hassett, a longtime loyalist of the president who is now director of the White House’s National Economic Council, is seen as the front-runner to replace Mr. Powell. Kevin M. Warsh, a former Fed governor, and Christopher J. Waller, a sitting governor, are also among those being considered.
Mr. Trump, who is close to making his pick, has not shied away from expressing what he wants out of it.
“I’m looking for somebody that will be honest with interest rates,” Mr. Trump said on Wednesday after criticizing the Fed’s interest rate reduction for being too small and insulting Mr. Powell personally. “Our rates should be the lowest rates in the world,” he added.
But the latest Fed meeting accentuated how much resistance the next chair could face if it appears as though he is just doing the president’s bidding as opposed to what is most appropriate for the economy.
“If the next chair comes in with a specific agenda that is not consistent with the economic backdrop, I think that person will lose the room right away,” said Tom Porcelli, the chief economist at Wells Fargo.
Mr. Porcelli sees little scope next year for substantially lower borrowing costs given that “this is not an economy that is rolling into a recession.” Rather, he expects the backdrop next year to call for two quarter-point reductions in March and June.
Matthew Luzzetti, the chief U.S. economist at Deutsche Bank, sees even less room for the central bank to cut next year. He forecasts just one quarter-point reduction, but not until September on the basis that growth will pick up, the labor market will stabilize and inflation will remain sticky. That combination should make the committee “reluctant” to cut interest rates, he said.
Mr. Trump would no doubt object to such a gradual pace of cuts, risking an escalation in his attacks against the institution, which operates independently from the White House. So far this year, Mr. Trump has repeatedly threatened to fire members of the Fed and is now engaged in a legal battle with one governor, Lisa D. Cook, whose case over her attempted ouster will be heard by the Supreme Court in January. As recently as this week, the president tested a new way to undermine officials, claiming without evidence that his predecessor, Joseph R. Biden Jr., might have improperly installed four governors to the board.
But even more intense browbeating from the president is unlikely to sway the current roster of officials at the Fed, as evidenced by the vocal opposition from some policymakers who harbor concern about inflation getting stuck above the Fed’s 2 percent target.
“It’s complicated because of the way that the White House has gone about putting pressure on the Fed,” said Lael Brainard, a former vice chair of the Fed who most recently served as a top economic adviser to the Biden administration. “Some members of the committee might feel like they need to be clear that they’re not going to be pushed and that the independence of the Fed is a valuable institutional attribute to be preserved and defended.”
What risks emerging is a much more fractured Fed that struggles to convey a cohesive message about the policy path forward, Ms. Brainard warned.
“It’s hard enough to communicate in a way that’s accessible to the general public on monetary policy and a pattern of constant dissents makes it even more complicated,” she said. “That’s a real loss for the general public and could cause a corrosion of trust in the institution, which is really damaging.”
Colby Smith covers the Federal Reserve and the U.S. economy for The Times.
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