On July 7, the Financial Association reported (editor Xia Junxiong) that as the conflict between President Trump and Federal Reserve Chairman Powell continues to escalate, Trump is considering appointing the next Federal Reserve chairman in advance to undermine Powell's influence.
As early as his first term, Trump disagreed with Powell. After starting his second term, Trump intensified his public pressure on the Federal Reserve to cut interest rates, but Powell remained unmoved. In the first half of this year, the Federal Reserve maintained interest rates unchanged at four meetings.
An impatient Trump has recently publicly called for Powell's resignation, and U.S. Treasury Secretary Basant has stated that there are many excellent candidates for Federal Reserve chairman, and work on this will begin in the fall.
Powell's term as Federal Reserve chairman will end in May next year, while his term as a member of the Federal Reserve Board will last until January 2028. Powell has not indicated whether he intends to serve the full term on the board.
However, some analysts pointed out that Trump has made the job of the next Federal Reserve chairman even more difficult.
This pre-setting of positions may weaken the independence and credibility in the eyes of the public and the market before the next chairman's candidate is announced. People will question whether this candidate can truly uphold the independence of the Federal Reserve or if they will yield to the president's political will.
"People will wonder if there are any commitments, hints, or tacit agreements behind such a nomination," said Jon Faust, a researcher at Johns Hopkins University’s Center for Financial Economics and a former special advisor to Powell. "This is extremely unfavorable for the next Federal Reserve chairman and would undermine the credibility of the entire Federal Reserve."
The economics community generally believes that when central banks independently set interest rate policies, the economy operates more smoothly and inflation is more controllable.
Julia Coronado, founder of MacroPolicy Perspectives, stated: "If people believe that the central bank will lean even slightly towards political pressure, they will expect higher inflation and greater macroeconomic volatility. The market will price this risk, affecting the bond market and the entire financial market."
Coronado also stated that she expects the next Federal Reserve chairman to be less committed to maintaining the independence of the Federal Reserve than previous ones.
"It won't be a radical figure like an 'arsonist', but there will be significant changes," she said. "They will marginally guide the committee towards a more accommodative policy, as this will be influenced by political pressure, which will inevitably have an impact."
It should be noted that regardless of who Trump appoints as the next chairman, the internal checks and balances of the Federal Reserve will still exist. The chairman is just one of the 19 policymakers on the Federal Open Market Committee (FOMC) and one of the 12 voting members.
Derek Tang, an economist at Washington policy analysis firm LH Meyer, pointed out that as long as a reasonable logic for rate cuts can be proposed, the new Federal Reserve chairman still has a chance to gain market recognition.
He said he would closely monitor investors' reactions to future inflation expectations after Trump announces his candidate, which will become an important barometer of market trust in that candidate.
"This candidate needs to walk a tightrope," Tang said. "They need to satisfy Trump while also being able to convince the market that he/she will defend the independence of the Federal Reserve and its inflation control goals. He/She must balance both, which is difficult to achieve."