The Interest Rate Game Between the Federal Reserve and the White House: A Struggle with No Winners
The U.S. economy is caught in a rare policy deadlock. Trump recently criticized Federal Reserve Chairman Powell again, stating he is "utterly foolish" and hinted that he should be in charge of the central bank. Powell responded firmly, stating that the Federal Reserve's monetary policy framework "should not change with the turnover of chairmen"—which effectively directly rejected Trump's calls for interest rate cuts.
Behind this months-long confrontation lies a fundamental contradiction facing the U.S. economy:
The Dilemma of Debt and Inflation
The core reason the Trump administration urgently wants to cut interest rates is the continuously expanding interest payments on U.S. debt in a high-interest-rate environment. Currently, the scale of U.S. national debt has exceeded $34 trillion, and interest payments alone surpass the defense budget. If interest rates remain high, federal finances will face immense pressure.
On the other hand, the Federal Reserve's insistence on not cutting interest rates comes from persistently high inflation data. The latest CPI year-on-year still stands at 3.3%, and the core PCE price index far exceeds the 2% policy target. Powell's team is concerned that prematurely loosening monetary policy could repeat the "out-of-control inflation" scenario of the 1970s.
The Inevitable Result of Institutional Conflict
This game is essentially a product of the unique political structure in the U.S.: the White House focuses on short-term economic growth and debt sustainability, while the Federal Reserve must be responsible for price stability. When these two major policy objectives conflict, the institutional design inevitably pits the two power centers against each other.
Currently, the market generally believes that the Federal Reserve is unlikely to yield to political pressure before clear signs of a significant economic recession appear. The outcome of this power game may determine whether the U.S. economy falls into the quagmire of "stagflation" or achieves the rare feat of a "soft landing." Investors need to be wary that, regardless of which side ultimately gains the upper hand, the market could face significant volatility.
