Federal Reserve Poised for Rate Cuts Amid Leadership Speculation

In light of recent economic indicators and statements from Federal Reserve officials, major financial institutions are now forecasting a 25-basis-point interest rate cut at the upcoming Federal Open Market Committee (FOMC) meeting scheduled for December 9–10, 2025. This anticipated policy shift coincides with speculation surrounding potential changes in the Federal Reserve's leadership.

Bank of America (BofA) Global Research has revised its outlook, now expecting the Federal Reserve to reduce interest rates by 25 basis points in December. This adjustment is attributed to signs of a weakening labor market and dovish remarks from key Fed officials, including New York Fed President and FOMC Vice Chair John Williams. Previously, BofA had anticipated no change in rates for December. Looking ahead, BofA projects two additional quarter-point cuts in June and July 2026, potentially bringing the terminal rate to a range of 3.00%–3.25%. The bank emphasized that this forecast adjustment reflects anticipated changes in Fed leadership rather than economic conditions. Notably, White House economic adviser Kevin Hassett has emerged as a leading candidate to become the next Fed Chair. The next FOMC meeting is scheduled for December 9–10, 2025.

Similarly, J.P. Morgan has adjusted its forecast, now predicting a 25-basis-point rate cut in December, reversing its earlier expectation of no change until January. This shift follows remarks from Fed officials suggesting a possible earlier move. According to the CME Group’s FedWatch Tool, traders are currently pricing in an 87.6% probability of a December rate cut.

U.S. equity markets have responded positively to the anticipated rate cut. On December 2, 2025, the Dow Jones Industrial Average rose by 0.39%, the S&P 500 gained 0.25%, and the Nasdaq added 0.59%. Technology stocks, including Apple, Nvidia, and Microsoft, each increased by about 1%. Boeing led the Dow’s rally with a 10.1% surge after forecasting increased deliveries of its 737 and 787 aircraft next year.

In parallel with these developments, President Donald Trump has announced plans to reveal his nominee for Federal Reserve Chair early in 2026, as Jerome Powell's term concludes in May. Kevin Hassett, the current White House economic adviser, is considered a frontrunner for the position due to his advocacy for lower interest rates and close ties to the administration. Hassett has expressed his willingness to serve if chosen, stating, "I'm honored to be considered among a group of strong candidates."

Other potential candidates include Fed Governors Michelle Bowman and Christopher Waller, former Governor Kevin Warsh, and BlackRock's Rick Rieder. The nominee will face the challenge of navigating monetary policy in an economy marked by moderate inflation and labor market concerns.

Analysts anticipate that a change in Federal Reserve leadership could influence the central bank's monetary policy direction. Kevin Hassett's potential appointment aligns with President Trump's preference for lower interest rates. However, analysts foresee only modest rate cuts under the new chair, given persistent 3% inflation, above the Fed’s 2% target. Internal resistance from existing Fed governors and regional bank presidents may limit further easing. Jerome Powell may remain on the board post-chairmanship, potentially countering Trump’s influence, especially amid the administration’s attempt to remove Biden-appointed Governor Lisa Cook.

The Organization for Economic Co-operation and Development (OECD) forecasts a slight global economic deceleration from 3.2% in 2025 to 2.9% in 2026, with a rebound to 3.1% expected in 2027. The U.S. 2025 growth forecast was upgraded to 2%, aided by AI investments, fiscal measures, and anticipated Federal Reserve rate cuts. However, large federal deficits raise sustainability concerns. Global trade growth is expected to slow significantly from 4.2% in 2025 to 2.3% in 2026, with inflation gradually aligning with central bank targets by mid-2027.

As the Federal Reserve approaches its December meeting, the anticipated rate cut and potential leadership changes are poised to have significant implications for monetary policy, market stability, and economic growth. Stakeholders will closely monitor these developments to assess their impact on the broader economic landscape.