The political attack aimed at replacing Federal Reserve Chairman Jerome Powell is raising concerns about interference that undermines the central bank's independence and its impact on inflation and the economy.
President Donald Trump has continuously criticized Powell for not lowering interest rates, driving the financial markets into a state of instability with the risk of prolonged inflation and a loss of confidence in the ability to maintain independent monetary policy.
MAIN CONTENT
President Trump proposed replacing Fed Chairman Jerome Powell due to dissatisfaction with high interest rate policies.
Financial markets fear rising inflation and a sudden spike in long-term borrowing costs.
Experts and financial leaders emphasize the necessity of central bank independence to maintain economic stability.
What did President Trump do to pressure the Fed and Jerome Powell?
According to economic experts, President Donald Trump has continuously publicly opposed Fed Chairman Jerome Powell for not lowering interest rates after being re-elected in January 2025. He also stated that Powell's maintaining high interest rates is an act of sabotage against the US economy.
In recent statements, President Trump suggested that Powell should resign and that his resignation would be good for the economy as signs of declining global growth become increasingly evident.
The independence of the central bank is a vital factor for maintaining economic stability. Disrupting this could have severe and unpredictable consequences.
Jamie Dimon, CEO of JPMorgan Chase, July 2025
How do financial markets react to political pressure on the Fed?
Investors have begun to reflect concerns about inflation as long-term US government bond yields rise sharply. This indicates expectations that interest rates will increase due to rising inflation pressures.
Guy LeBas, chief fixed-income strategist at Janney Capital Management, warns that if the Fed concedes to cut interest rates early under political influence, the US economy could face the risk of 'overheating' and prolonged inflation.
The US dollar is also under pressure to depreciate in anticipation of looser monetary policy, contributing to rising import costs, thereby exacerbating inflation.
Why is the independence of the Fed important for economic stability?
The independence of the Fed helps ensure that monetary policy decisions are made based on economic data and inflation control objectives, without being influenced by short-term political pressures. Financial experts and economists assert that if the Fed loses its independence, market credibility will be severely damaged.
The minutes of the Fed meeting in June 2025 show that a majority of policymakers remain concerned about inflation risks from protectionist tax policies and show no signs of supporting a rate cut in the next meeting at the end of July.
"If the market believes that the Fed will lower interest rates regardless of economic consequences due to political pressure, long-term inflation expectations will rise, leading to a yield curve distortion that complicates long-term borrowing."
Guy LeBas, Janney Capital Management, July 2025
What potential impacts could occur if the Fed is politicized?
If the Fed cuts interest rates under political pressure, long-term borrowing costs such as mortgages, consumer loans, and corporate bonds will increase, putting pressure on household budgets and corporate profits.
This loss of independence could cause volatility not only in the bond market but also spill over into global stock, commodity, and foreign exchange markets, undermining investor confidence.
Does the President have the authority to fire the Fed Chairman?
Current law does not allow the President of the United States to use executive power to fire the Fed Chairman due to policy disagreements. However, public pressure and a large-scale media campaign could lead to the Fed losing its actual independence in monetary policy decisions.
Analyzing the differential impact between short-term and long-term interest rates when the Fed is politicized
Criteria Short-term Interest Rate Long-term Interest Rate Main Impact Immediate credit regulation, short-term inflation control. Borrowing costs for housing, businesses, and long-term investments. Impact when the Fed is politicized Easily diminished, causing temporary stimulus. Increases sharply if investors doubt the ability to control inflation. Economic Impact Stimulates short-term growth, may cause inflation. Creates prolonged financial difficulties, reduces large investments and consumption.
Frequently Asked Questions
Does President Trump have the authority to fire the Fed Chairman?
Under current law, the President does not have the authority to fire the Fed Chairman solely for policy disagreements.
Why is the independence of the Fed important?
Independence helps the Fed maintain effective monetary policy, control inflation, and not succumb to short-term political pressures.
How do financial markets react to the risk of politicizing the Fed?
Investors raise expectations that interest rates will increase, long-term bond yields rise, and the US dollar weakens.
What effects can come from cutting interest rates too early?
Could lead to an overheated economy, prolonged inflation causing long-term negative impacts.
What do the minutes of the Fed meeting in June 2025 say about interest rate cuts?
The majority of policymakers do not support cutting interest rates due to existing inflation risks.
Source: https://tintucbitcoin.com/trump-day-powell-lam-phat-tien-so/
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