Scenario of majority control of the Federal Reserve Board falls apart Compromise on the nomination of the next Federal Reserve governor is inevitable Maverick-Friendly FOMC Shifts Toward Further Tightening "Create an environment focused on curbing inflation"
As the Democrats regain majority control of both the U.S. Senate and House in the midterm elections, concerns among financial investors that the Federal Reserve, the central bank, will come under the control of White House politicians are expected to ease significantly. The Democrats, holding the power to confirm senators, will now be able to exert strong checks on President Donald Trump's appointment powers.
According to reports from major media outlets on the 4th (local time), the Democrats secured at least 228 seats in the House and at least 54 seats in the Senate in the midterm elections held on the 3rd, taking control of both chambers. Over the 21 months since returning to power, President Trump has undermined institutional norms that guarantee the Fed's independence by demanding aggressive interest rate cuts. However, with the shifting landscape of the Senate following the election results, the White House's plan to bring more loyalists into the Federal Reserve Board to control monetary policy collapsed.
In the United States, the majority party monopolizes all standing committee chair positions. The Democrats, who control Congress, plan to install Democratic Senator Elizabeth Warren of Massachusetts as chair of the Senate Banking Committee, which oversees the Fed's supervision and confirmation hearings. Although Senator Warren has been vocal about tightening Wall Street regulations, she maintains that political interference must be excluded from the monetary policy decision-making process and that the autonomy of central banks should be preserved.
The Trump administration has employed unprecedented pressure tactics to seize control of the Federal Reserve Board. When Adriana Kugler abruptly resigned in August last year, the White House, in coordination with the Republican Senate, immediately appointed Stephen Miran, chair of the White House Economic Advisory Council, as interim director. In all six meetings she attended before incumbent Chair Kevin Warsh joined in May, Miran voted against, calling for a significant rate cut. President Trump also stepped in to pressure the Federal Reserve. In April of last year, he criticized then-Chairman Jerome Powell, saying, "Removing Powell is never too soon." In November, "Honestly, I want to fire him right away. He unleashed harsh criticism, saying, "He is extremely incompetent." Pushing to dismiss Director Lisa Cook, appointed by former President Joe Biden, over allegations of mortgage fraud The case was even stalled by the Federal Supreme Court. Trump is the first president to attempt the ousting of a sitting board member. Under current law, the president can only dismiss a Federal Reserve board member if there is a justifiable reason proven to be based on serious misconduct or illegal conduct, rather than a difference in policy opinion. The White House had even announced an internal hearing for Cook's dismissal in December, but the gains were lost as the Democrats took control of the Senate. Even if a vacancy is created, the Democratic Banking Committee could reject the nomination of a successor appointed by the White House and leave the position vacant.
The makeup of the 12 Federal Open Market Committee (FOMC) voting members (7 governors and 5 regional Federal Reserve bank presidents) that determine the Fed's monetary policy is a complex mix of political and policy orientations. Among the seven board members, three nominees are considered pro-Trump: Chairman Kevin Warsh, Vice Chair of the Financial Services Committee Michelle Bowman, and Director Christopher Waller, all of whom took office this year. The anti-Trump and pro-Youtube independent stance camp includes four members: former Chair Powell, nominated by former President Barack Obama; Vice Chair Philip Jefferson, selected by former President Biden; Director Michael Barr; and Director Lisa Cook. However, political orientation and monetary policy stance do not necessarily coincide. Chairman Wirth, Deputy Chairman Bowman, and Director Waller, all considered pro-Trump, are hawkish in that they prioritize price stability and favor monetary tightening, contrary to President Trump's desire for low interest rates. Breaking concerns that he would yield to pressure from the president, Chairman Worthy signaled a hawkish stance by raising the benchmark interest rate by 0.25 percentage points in his first policy decision last September. In contrast, Director Cook, who is at odds with the Trump administration, leans dovish and emphasizes job security. Directors Powell, Vice Chairman Jefferson, and Bar are regarded as data-driven centrists who seek balance.
The five regional Federal Reserve bank presidents voting in the FOMC this year are also largely vocal about caution against inflation, keeping a distance from political influence. John Williams, president of the New York Fed, is considered centrist, whereas Dallas Fed President Lorie Logan and Cleveland Fed President Beth Hamack are hard-left hawks who voted against a rate hike of 0.25 percentage points during the July pause. Minneapolis Fed President Neel Kashkari also shows a moderate hawkish stance. Anna Paulson, President of the Philadelphia Fed, is considered a moderate dove. Experts assessed that as the Democrats’ control of the Senate has weakened the president’s influence, Chairwoman Wirth and the hawkish members now have greater room to maneuver in deciding on additional rate hikes in December and next year without being constrained by the White House. Dalip Singh, senior global economist at PGIM and former senior official in the Biden administration, told Bloomberg, "The election results have reduced the leverage the president has over Congress, the nation, and the Federal Reserve," adding, "Given that voters are angry about soaring living costs, the Fed is uniquely positioned to manage interest rates." Reporter Yoo Jin-woo ojo@chosunbiz.com
The Senate's immense powers appear likely to put even more pressure on Trump.
Trump's misguided war continues to erode the Republican Party's standing.
If they continue as they are without reflecting on their mistakes, the Democratic Party’s power will only grow stronger.
