President Donald Trump is set to replace outgoing Federal Reserve Chairman Jerome Powell when his term ends next year. But that doesn’t mean interest rates will come down right away, as Trump might want.

Powell has rankled Trump and his allies for months for overseeing a Fed that has thus far refused to cut interest rates due to fears of another uptick in inflation. The next pick is likely to be much more open to lowering rates, but what that actually looks like in practice might not be what some in Trumpworld would expect.

Recommended Stories

• SEC takes crypto-friendly stance in debate over securities, slams 'scarlet letter' stigma
• Trump unloads on Powell after Fed decision to keep interest rates steady: 'Too angry, too stupid'
• Trump says trade deal with Canada made 'very hard' after plan to recognize Palestinian state

That is because the Fed chair can’t just snap their fingers and change interest rates. Instead, that is up to a 12-person board called the Federal Open Market Committee. The FOMC decides collectively what the course of interest rate policy should be.

“It’s important to point out that a Fed chair is not a dictator — the Fed chair may or may not be able to deliver the committee on lower rates if that is something that nominee believes needs to happen,” Dennis Lockhart, former president of the Federal Reserve Bank of Atlanta, told the Washington Examiner.

For any interest rate changes to be effective, the committee has to approve them by a majority vote, yet another buffer safeguarding the Fed’s independence from the presidency and Congress in monetary policy.

The FOMC comprises the seven members of the Fed’s Board of Governors; the president of the Federal Reserve Bank of New York; and four of the other 11 Reserve Bank presidents, who serve one-year terms on the FOMC in a rotating capacity.

Still, the Fed chair holds sway and deferences among committee members.

Lockhart, who was president of the Atlanta Fed from 2007 to 2017, said that the Fed chair is typically viewed among committee members as a tiebreaker.

“[The chair] almost always wins a jump ball, in fact, over 10 years in cases where the consensus was not clear, Chairman [Ben] Bernanke or Chairman [Janet] Yellen, under whom I served, would state their preference and that would almost always be supported by the committee,” he said.

He said the chair has a lot of influence when there is no clear consensus among the FOMC members, but that sway comes over time. A Fed chair wouldn’t necessarily have that sway right off the bat.

“A chair has to earn the respect of the committee. It doesn’t simply transfer with the position,” Lockhart said. “It’s a matter of the leadership, and in many respects, the way a chair conducts a meeting and conducts himself or herself in representing the committee to the public.”

Mark Hamrick, senior economic analyst at Bankrate, told the Washington Examiner that the Fed’s independence and operation are carefully constructed to give whoever is chosen to lead the central bank a sort of firewall between the president and what is happening at the Fed.

Presumably, that firewall will give the next Fed chair more freedom to operate outside of what Trump might want to happen with the Fed at any given time.

“My hope is that once the person is in that position, which has some protective elements provided around it that are intended to help that person do the job, that they will be somewhat vaccinated against interference on the part of the administration,” Hamrick said.

Still, Trump has been very forceful in wanting rates to be cut, and he will almost certainly choose a Fed nominee who ascribes to a similar view or is at least in agreement that monetary policy should be less restrictive than it has been.

Hamrick said it is reasonable to expect Trump to press potential Fed nominees to adopt a dovish view toward monetary policy.

There have already been lists of potential Fed chair nominees circulating. It is unlikely that Trump will attempt to nominate someone very outside the norm, in part because the Fed nominee will have to be confirmed by the Senate.

Trump can’t just appoint someone who wants to reinvent the wheel entirely at the Fed and slash interest rates because they would face trouble getting approved in the Senate. For instance, Trump nominated firebrand former Rep. Matt Gaetz (R-FL) to be attorney general, but he later withdrew when it was clear he did not have the votes.

Five names are currently circulating as potential successors to Powell: National Economic Council director Kevin Hassett, former Fed governor Kevin Warsh, Treasury Secretary Scott Bessent, Fed governor Christopher Waller, and Fed vice chairwoman of supervision Michelle Bowman.

“I would say that among the nominees that have been sort of publicly reported or speculated, I think there is a reasonable likelihood that those, any of those individuals, is generally capable of doing the job in a credible fashion, but they also need to be allowed to do their job,” Hamrick said.

It also should be noted that the past few Fed chairs have all had direct time at the Fed prior to leading it. While there is no requirement that be the case, Lockhart said that there might be a bit of a learning period if the new chair does not have a background of work at the central bank.

“In my observation, there are strong procedural values at work in the Federal Reserve, and a new chair who tried to change the way things are done in a radical way would face a lot of resistance,” Lockhart said.

While Trump and his allies have been lambasting the Fed for not cutting interest rates, things could change between now and Powell’s exit; in fact, the entire economic landscape could change during that time.

For instance, in a bad scenario, inflation could start trending up much more than expected, and the Fed’s leadership might be forced to keep interest rates higher.

FED HOLDS INTEREST RATES STEADY, BUCKING TRUMP PRESSURE

Also, another big wave of inflation in 2022 would be politically disastrous for Trump and Republicans, far worse than too-high interest rates. The explosive inflation of the Biden administration was one of the main factors that cost Democrats the 2024 elections.

The markets are also an elephant in the room regarding Trump picking Powell’s successor. Markets want stability, and any indication that the new Fed chair will try to take the central bank in a radically different direction will be met negatively.