Divisions at the Fed that defined 2025 are expected to carry into 2026

Core Viewpoint - The Federal Reserve is facing significant challenges in achieving its dual mandate of maximum employment and stable prices, leading to divisions within the central bank and complicating future monetary policy decisions [6][19]. Group 1: Federal Reserve Leadership Changes - Fed governor Adriana Kugler stepped down, and Stephen Miran was appointed to complete her term, raising concerns about the independence of the Fed [1] - President Trump expressed frustration with the Fed's interest rate policies, leading to tensions and threats regarding the removal of Fed Chair Jerome Powell [2] - A new Fed chair is expected to face difficulties in building consensus, especially if inflation remains high while the job market is soft [4][20] Group 2: Economic Conditions and Monetary Policy - The Fed has cut interest rates three times in 2025, but future cuts may be complicated by ongoing inflation concerns and a cooling job market [5][13] - The impact of tariffs on inflation has been less severe than anticipated, with some Fed officials expecting inflation to peak in early 2026 [12][18] - The labor market showed signs of cooling, prompting discussions about preemptive rate cuts to support employment [8][9] Group 3: Future Outlook - Officials anticipate only one more rate cut in 2026, as inflation remains above the 2% target and economic growth is expected to rebound [17] - The upcoming year may see continued divisions within the Fed, particularly if the new chair advocates for lower rates while others oppose [21][22] - The uncertainty surrounding official data due to the government shutdown is complicating the Fed's ability to make informed policy decisions [10][14]