BY: Matthew Kimbrough
Senior Portfolio Manager
The Decision
At the conclusion of today’s FOMC meeting, the Fed Funds rate was held steady at the current range of 3.50% – 3.75%.
Today’s decision was once again not unanimous; there were multiple dissenting votes. Stephen Miran and Christopher Waller would have preferred to lower the target range for the Fed Funds rate by 25 basis points.
Economic Projections
The next Statement of Economic Projections (SEP) will be released at the March FOMC meeting. Recall that the most recent (December) SEP suggested just one 25bp rate cut this year, and highlighted higher growth projections and lower inflation projections in 2026.
Who Will be Nominated as the Next Fed Chair?
Jerome Powell’s term as Chairman of the Federal Reserve is coming to an end this May, and a new Chair is soon to be nominated by President Trump. A recent WSJ article by Nick Timiraos went into detail about each of Trump’s top four contenders for the position, but also stated that none of the four are ideal.
Nominating Kevin Hassett, chairman of the White House National Economic Council, would likely raise the most questions of Fed independence. Trump has also recently indicated that Hassett may be too valuable to the Presidency in his current role. Kevin Warsh was a former member of the Fed Board of Governors, yet was relatively hawkish during his former tenure in that position, which goes against Trump’s agenda of lowering rates. Christopher Waller is a current voting member of the FOMC, and dissented from the Fed’s decision in July of last year (stating that he would have preferred a 25bp cut at the time). However, Waller purportedly failed to establish positive rapport between himself and President Trump during last month’s interview process. The final candidate on Trump’s shortlist for the Fed Chair position is Rick Reider, BlackRock’s CIO of Global Fixed Income. Although Reider is a Washington outsider who has donated to both Democratic and Republican opponents of Trump during previous Presidential campaigns, Trump also characterized him as “very impressive” during a recent interview on CNBC.
Online betting markets currently place the odds of receiving the Fed Chair nomination overwhelmingly in Reider’s favor, at 46%. Warsh’s odds are around 26%, and the odds of all other candidates are less than 10%. Although the nomination (and confirmation) of a new Fed Chair is eagerly anticipated, Timiraos suggests that even a timeline of late February for such an announcement would be in keeping with historical norms.
The Statement
This meeting’s statement contained several amendments, which are highlighted in the chart below.
Paraphrasing Fed Chair Jerome Powell During the Press Conference
When asked what would happen if the Fed loses independence, Powell had this to say: “Every advanced democracy in the world has come around to this common practice. It’s an institutional arrangement that has served the people well. The reason for not having direct elected control over the setting of monetary policy is that monetary policy can be used through an election cycle to affect the economy in a way that would be politically valuable… If you lose that independence, it would be difficult to restore the credibility of the institution.”
“The policy rate is at the higher end of the range of potential neutral estimates. I think it’s hard to look at the incoming data and say that policy is significantly restrictive at this time.”
Is the expectation still for inflation to start cooling in Q2 2026? Core PCE at 3% is roughly the same as the year before. Most of this overshoot in inflation in 2025 was in goods prices, which was largely due to tariffs, and we think that those will not result in inflation, but rather a one-time price increase.
“It isn’t anybody’s base case that the next move will be a rate hike.”
“The U.S. Federal budget deficit is on an unsustainable path… Right now we’re running a very large deficit at essentially full employment, and the fiscal picture needs to be addressed.”
Powell avoided quite a few questions during the press conference related to the current political environment, whether he would stay on as a FOMC member after leaving his post as Fed Chair, and recent volatility in the U.S. dollar. He recommended that the future Fed Chair stay out of political matters, and also wished them well, stating that there isn’t a better cadre of public officials dedicated to public well-being than the individuals who work at the Federal Reserve.
The Market Reaction
Treasury yields were unchanged after the Fed’s press conference, and equity markets were up less than 1%.
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