Fed Fissures Widen: Independence Battles Clash with New Supply-Side Dovishness

Federal Reserve policymakers are engaging in an increasingly public debate over the trajectory of US interest rates, revealing deep ideological rifts regarding central bank independence. While the consensus leans toward a pause at the January meeting, the rationale for future cuts is diverging sharply between traditional data dependence and novel supply-side theories.

The Independence Defense

Chicago Fed President Austan Goolsbee and Minneapolis Fed President Neel Kashkari have mounted a stern defense of the Feds autonomy amid escalating political friction. With Chair Jerome Powell facing legal scrutiny regarding office renovations, officials are drawing red lines.

Kashkari, a voting member in 2026, explicitly advocated for maintaining the status quo at the upcoming January 27-28 meeting. Citing a resilient “K-shaped” economy and sticky housing inflation, he argued that the battle against rising prices is not yet won.

Millan's 'Deregulation' Pivot

In stark contrast, Governor Stephen Millan, a recent Trump appointee, has introduced a controversial economic thesis. He argued that the incoming administration's deregulation agenda—aiming to cut federal regulations by 30% by 2030—will trigger a massive positive supply shock.

Millan is reportedly eyeing a cumulative 150 basis points of cuts by 2026, a pace far exceeding the dot plot consensus.

The Middle Ground

Philadelphia Fed President Anna Paulson (2026 voter) views the current 3.5%–3.75% range as “slightly restrictive,” sufficient to guide inflation back to 2% without collapsing the economy.

Market Implications

The divergence creates a complex environment for the US Dollar. Traders must now weigh standard macro data against the growing influence of supply-side politics within the FOMC.

Key Data Snapshot

• Projected Cuts: 150 basis points by 2026 (Millan).
• Current Rate Range: 3.5%–3.75% (Paulson).
• Inflation Target: 2%.
• Deregulation Target: 30% reduction by 2030.
• Critical Date: January 27-28 Meeting.