Unprecedented Public Attack
In recent weeks, former U.S. President Trump has intensified his public criticism of the Federal Reserve and its Chairman Powell. Nick Timiraos of The Wall Street Journal, often referred to as the "New Fed News Agency," notes that such direct and frequent attacks are extremely rare in the Fed's history, placing it in a lose-lose situation—if rates are lowered, it may fuel inflation; if they remain unchanged, the economy could face further pressure amid a slowdown.
Trump publicly demanded that the federal funds rate be quickly lowered from the current 4.3% to 1%-2% to alleviate the growing debt costs. He accused the Fed of "slowing down the pace of economic recovery" and stated that the current high rates are an "artificial obstacle" to the US economy.
Internal Divergence Emerges as Officials Turn Dovish
Under Trump's pressure, the Fed's internal stance has subtly softened. Board members Bowman and Waller, once considered hawkish, have recently expressed support for a possible rate cut in late July, citing increased risks of a weakening job market rather than overheating inflation.
Vice Chair Bowman's shift in stance is seen as a "major signal," as she has moved from focusing on inflation to concerns about employment. This shift reinforces external expectations that the Fed might ease monetary policy at the July policy meeting.
Congressional Testimony as a Crucial Moment
Powell is set to attend two hearings in Congress, where his testimony will not only serve as a window for monetary policy guidance but also as a barometer for testing the central bank's independence. Lawmakers will closely watch whether Powell adjusts his policy stance under Trump's influence.
Analysts point out that the "clarity" and "independence expression" of Powell's testimony itself will act as a market trading signal. If his words are vague or appear to cater to political pressure, it could trigger a violent market reaction.
Historical Review: Presidential Interference in the Central Bank is Not New
Trump is not the first president to try to influence the Federal Reserve. In the 1960s, Johnson pressured then-chairman Martin to compromise at his ranch. In the 70s, the Nixon administration used smear tactics to force Chairman Burns to comply with control measures. However, the Fed has generally established a strong independent operation mechanism in recent years.
Investment manager Mark Spindel notes that Trump's approach is different in being "more frequent, more public, and more aggressive," which could undermine the long-standing image of central bank neutrality.
"Shadow Chairman" and Institutional Risks
The most concerning possibility is Trump weakening Powell's influence by acting as a "shadow chairman," perhaps by announcing future nominees in advance. If this happens, it could directly undermine market confidence in the current Fed's policies.
However, this move would also place the nominee in a dilemma: either becoming a "presidential spokesperson" or being criticized by public opinion even before taking office. Once the Fed's policies are widely seen as "politicized," its credibility in global markets might be damaged.
