Written by: Long Yue, Wall Street Insights
Facing the Federal Reserve's reluctance to cut interest rates, Trump is restless. He is once again considering breaking convention, preparing to announce the next Federal Reserve chairman in advance, attempting to pressure Powell into accelerating the interest rate cut process through a "shadow chairman" strategy.
According to the Wall Street Journal, Trump is considering announcing Powell's successor as early as this summer or fall, far ahead of the traditional 3-4 month transition period. Insiders revealed that Trump is increasingly dissatisfied with the Federal Reserve's cautious stance on interest rate cuts and hopes to influence market expectations and monetary policy direction by announcing the successor in advance.
Insiders disclosed that in recent weeks, Trump has been considering selecting and announcing Powell's successor before September or October, and his anger towards Powell might lead him to announce the successor earlier this summer. The new Federal Reserve chairman will not take office until May next year.
Trump hinted at an accelerated process during a NATO summit press conference:
I know who I will choose among 3-4 people. Fortunately, he will be leaving soon because I think he is terrible.
However, Federal Reserve policy is set by a committee of 12 decision-makers, and Trump cannot appoint a majority of members unless current board members resign early. This means the new chairman must have the ability to persuade a broader committee. An early announcement also carries risks. Candidates might find themselves in an awkward position of publicly criticizing future colleagues or lose credibility if the market sees them as sycophants.
Candidates Emerge
Wall Street Insights previously mentioned that according to media reports, main candidates include former Federal Reserve Board member Walsh, National Economic Council Director Hassett, current Federal Reserve Board member Waller, and Treasury Secretary Bezos:
Waller, a Federal Reserve Board member nominated by Trump during his first term, stated in a CNBC interview last Friday that he might support next month's rate cut due to concerns about an overly weak labor market.
Over the past two months, Walsh, a former Federal Reserve Board member and one of the top candidates for the next Federal Reserve chairman, has given multiple speeches, saying the Federal Reserve itself is responsible for these attacks. "When I see the media excitedly reporting how politicians are ruthless to the Federal Reserve, I just want to say: Grow up! Be tough!"
Powell's Response
Facing political pressure, Powell reiterated the Federal Reserve's independence at a Senate hearing on Wednesday: "If we make mistakes here, people will pay the price for a long time." He stated that interest rate cuts this year are possible, but "we will take a cautious approach".
Powell's term as Federal Reserve chairman ends next May, but his board member term extends until 2028, meaning he can choose to continue as a board member for another 1.5 years after stepping down as chairman. Powell stated at a congressional hearing on Tuesday that he is only focused on "keeping the economy strong and inflation under control during the remaining time at the Federal Reserve".
