When political demands collide with institutional barriers, the independence of the Federal Reserve is facing the ultimate stress test of the Trump era. This struggle over interest rate policy concerns not only the short-term economic direction but also the foundation of the dollar system.

I. The Illusion of Rate Cuts: The Break Between Economic Reality and Policy Logic

Currently, the U.S. economy shows a robust combination of 4.1% unemployment, 2.5% inflation, and 2% GDP growth, contrasting sharply with historical periods of extreme rate cuts (during wars or financial crises). Trump's demand to lower rates from 4.25%-4.50% to below 1% lacks macroeconomic data support. Even more contradictory is that his large-scale tariff increases have been confirmed by Fed Governor Waller to 'temporarily raise inflation'—this fundamentally conflicts with the demand for rate cuts.

II. Institutional Firewall: The Constitutional Dilemma of the Threat of Dismissal

Trump's threat to fire Powell over cost overruns on the Federal Reserve headquarters renovation faces legal constraints: the president can only remove the chair for 'misconduct,' and policy disagreements do not constitute a valid reason (as reaffirmed by the Supreme Court in May 2023). Even if Powell is no longer the chair by May 2024, his term as a Fed governor will continue until 2028, retaining his voting rights on the Federal Open Market Committee (FOMC). The so-called 'renovation corruption' investigation is essentially a political pressure tactic.

III. Decision-Making Structure: The Long-Term Check and Balance Mechanism of the FOMC

Even if the chair of the Federal Reserve changes in 2025, the voting structure of the FOMC will still pose a key constraint. In 2026, the rotating voting members, including Cleveland Fed President Mester and Dallas Fed President Logan, who are both hawkish, will continue to hold important positions—both have opposed interest rate cuts multiple times this year. Statistics from Deutsche Bank show that at least seven current FOMC members explicitly oppose rate cuts, making structural resistance difficult to overcome through personnel changes.

IV. Debt Crisis: The Fiscal Dilemma of Interest Rate Sensitivity

The urgency of rate cuts from the White House stems from a qualitative change in debt pressure: by 2025, federal interest expenditures will account for 24% of fiscal revenue, with net interest expenditures in June 2023 alone reaching $81 billion (second only to social security spending). Bank of America analysis indicates that rates need to be lowered to 3.25% to stabilize debt, and to 2% to save $200 billion. However, aggressive rate cuts could lead to a backlash in long-term U.S. Treasury yields, thereby increasing government financing costs.

V. Labor Gap: The Backlash Effect of Immigration Policy

Trump's (Great America Act) stipulates an increase in visa fees by $250 and sets a target of expelling 1 million people annually. Former Federal Reserve economist Claudia Sahm warns that this policy is 'economic poison': calculations from the Dallas Fed indicate that a reduction in immigration has already dragged down GDP growth by 0.8 percentage points in 2024; if the expulsion target is met, the impact will expand to 1.5 percentage points by 2027. AI and automation technologies cannot fill the labor gap in the short term.

VI. Market Defense: Wall Street's 'Expectation Management' Game

Financial institutions are building a triple defense strategy: positioning in advance for the expectation of a 'low interest rate + tax reduction' policy combination in 2025; establishing a hedging portfolio of 'going long on gold/crypto assets + going short on 30-year U.S. Treasuries + going long on tech stocks'; and betting that if Trump forcibly replaces Powell, the market will interpret it as a signal of a dovish shift. This so-called 'expectation bubble' operation is actually a passive defense under policy uncertainty.

Summary: The Ultimate Value of Independence

Historical lessons warn that Nixon's intervention in the Federal Reserve in the 1970s led to hyperinflation and the collapse of the Bretton Woods system. Currently, if central bank independence is shaken, it could trigger a global crisis of confidence in the U.S. dollar. Investors need to focus on the shape of the U.S. Treasury yield curve, the volatility index (VIX), and the allocation of safe-haven assets—before the clarity of policy games (the probability of a rate cut in September has fallen below 6%), institutional resilience will be the ultimate anchor for market stability.