After the global markets closed, Trump announced a shocking piece of news: the nominee for the next Federal Reserve chair 'will be announced soon.'
This is a serious matter.
It seems like just another normal news— the president nominates the next Federal Reserve chair, which is expected. But this is a significant negative news, shocking the world.
First, Trump's choice to announce after the global market closes on Friday indicates that he knows this is bad news, leaving the market to digest and forget over the weekend.
Second, announcing the nominee for the next Federal Reserve chair nearly a year in advance (Powell's term does not end until May next year) is extremely rare in modern Federal Reserve history— this news is comparable to 'firing Powell', and it is a 'covert palace coup'. After announcing the next nominee, Powell's influence on the market will be greatly weakened. Market attention will shift to what the next Federal Reserve chair is saying and preparing to do, even if Powell is still in place, the market will already regard him as a 'caretaker chair'.
Third, what Trump wants is not a 'neutral Federal Reserve,' but a 'compliant Federal Reserve'— the independence of the Federal Reserve will again be questioned. Trump wants to fire Powell because he is unwilling to cut interest rates, which has long been a point of contention between them. Trump's 'new candidate' will surely support rate cuts and may even privately promise them. Just last night, Trump called for a '100 basis point rate cut,' and today he announced the nomination of the next Federal Reserve chair, linking the two pieces of news into a significant announcement.
Fourth, if Powell does not resign, once his policy stance faces implicit opposition from the next candidate, the effectiveness of the 'forward guidance' will be greatly diminished, and the Federal Reserve's image of 'internal consistency' may be damaged— leading to chaos in financial markets, which could force Powell to resign. The most valuable assets of the Federal Reserve have long been its 'non-political' nature and 'stability', and Trump's actions directly undermine both.
Fifth, it is curious whether this person is an internal official of the Federal Reserve or an external choice, as this has different impacts on the market. The former is more accepted by the market, but it is difficult to meet Trump's expectations for rapid interest rate cuts.
Unlike the last 'Federal Reserve trust crisis' triggered by Trump, this time there is no way back. A month ago, after threatening to fire Powell, U.S. assets faced a wave of selling, and only after Trump clarified that he 'would not fire Powell' did the situation calm down. However, once the next Federal Reserve chair is announced, if it causes chaos in the market, no one will be able to resolve this crisis.
