Written by: Long Yue, Wall Street Insights
When Trump once again attacked Federal Reserve Chairman Powell for not cutting interest rates, former U.S. Treasury Secretary Summers saw through the intent of this "political performance" - finding a scapegoat for potential economic recession.
On June 19, former U.S. Treasury Secretary Lawrence Summers stated on Bloomberg's "Wall Street Week" that despite Trump's continued criticism of Federal Reserve Chairman Powell for not cutting interest rates this year, he expects Trump will still appoint a "mainstream candidate" to replace Powell. Summers believes that Trump's criticism of the Federal Reserve is more about shifting responsibility in case of an economic recession, rather than truly trying to influence Federal Reserve policy.
Political Calculation Behind Interest Rate Cut Calls
For Trump's repeated requests for the Federal Reserve to cut interest rates, Summers provided a more incisive interpretation.
"He is creating a situation where if we encounter a recession, he can blame factors other than his government's policies," Summers analyzed. This strategic criticism provides political cover for Trump when his economic policies might face challenges.
Trump again criticized Powell this week for maintaining the benchmark interest rate unchanged. A previous Wall Street Insights article mentioned that Trump again called on the Federal Reserve, demanding a 2.5 percentage point interest rate cut. He frequently pointed out that Powell, the "too late gentleman," has caused the United States to "lose hundreds of billions of dollars" by not cutting rates.
He even joked: "Can I appoint myself to the Federal Reserve position? I would do much better than these people."
"Mainstream" Successor: Market Stability Trumps Political Impulse
Despite Trump's verbal firepower, Summers remains optimistic about the next Federal Reserve chairman. He believes Trump will not sacrifice market stability to appease his political base.
Summers stated: "I would be quite surprised if he does not make a choice that fair observers from both parties would consider reasonable."
Summers said, "I am more confident in this than some people." He attributes this confidence to the financial market's quick response to relevant news.
Powell's chairmanship will expire in May 2026. Trump stated this month that the next Federal Reserve chairman will be "announced soon". Previously, current U.S. Treasury Secretary Scott Bessent said in April that the interview schedule for Powell's successor would be "sometime in the fall". Bessent himself and former Federal Reserve Board member Kevin Warsh are listed as potential candidates.
Tariff Policy as the Source of Supply Shock
Summers also paid special attention to the Federal Reserve's latest economic forecast. He pointed out that although energy costs have decreased this year and AI application promises productivity improvements, the new Federal Reserve forecast shows a negative rather than positive supply shock.
"It's uncommon for the Federal Reserve to simultaneously raise inflation and unemployment rate expectations," Summers noted. "So you see a supply shock coming. What is this? It's tariffs. We are imposing a supply shock on ourselves, which leads to expectations of higher inflation and higher unemployment - making the Federal Reserve's job more difficult."
This analysis directly points to the core contradiction of Trump's trade policy: on one hand pushing up inflation expectations through tariffs, and on the other hand demanding the Federal Reserve cut rates to stimulate the economy, effectively creating difficulties for the Federal Reserve.
