At the center of the storm in the financial world, an intense battle over monetary policy is unfolding. Trump, as a prominent figure in American politics, is pressuring Federal Reserve Chairman Powell to make significant interest rate cuts. Trump's demand is straightforward: the Federal Reserve should drastically reduce the current interest rate from around 4.25% to 1% to inject new vitality into the American economy.
However, under this immense pressure, Powell has shown a calm demeanor, neither choosing to resign nor complying with Trump's directive to cut rates. What careful consideration lies behind this?
Looking back at history, Powell's position may find its answer. In his view, rash actions under pressure, even with only 26 years left in his term, could lead to irreversible consequences, complete ruin of reputation, and possibly being used as a negative example by future generations. Powell understands that the independence of the Federal Reserve is crucial and cannot be easily compromised for short-term political pressures.
Historically, disagreements between presidents and Federal Reserve chairs over monetary policy are not uncommon, and the story of Nixon and Burns is most similar to the current situation. At that time, the U.S. economy was trapped in stagflation, with an unemployment rate of 6.1% and inflation exceeding 5.8%, creating a severe economic situation. Nixon, in order to be re-elected, adopted a strategy similar to Trump's, frequently meeting with Burns to pressure the Federal Reserve to lower interest rates, aiming to create short-term economic prosperity to aid his election.
In this power struggle, Nixon even publicly refuted Burns's professional analysis, warning him that he had no authority to nominate Federal Reserve board members, and implying that if he lost the election, Washington would no longer be a conservative stronghold. Ultimately, under immense pressure, Burns chose to compromise, and Nixon was re-elected as he wished. However, the good times were short-lived; the outbreak of the oil crisis exacerbated America's inflation problems, the dollar index plummeted, gold prices soared, and the American economy fell into collapse.
Burns has thus been forever nailed to the pillar of historical disgrace. His compromise, while preserving his position temporarily, sacrificed the independence and credibility of the Federal Reserve and doomed his historical reputation. The lessons from Burns's failure are profound, sounding the alarm for future Federal Reserve chairs.
Now, the passage of the (Great Beautiful Act) has led the Trump administration to plan further expansion of trillions of dollars in debt. Meanwhile, the approach of the 2024 midterm elections has made Trump more eager to lower interest rates to stimulate the economy and ensure electoral victory.
However, Powell's mindset is entirely different. He knows that if he steps down, Trump could freely appoint a new Federal Reserve chair; but during his tenure, he must at least maintain the independence and reputation of the Federal Reserve, not repeat Burns's mistakes and become a laughingstock of history.
Faced with Trump's strong pressure, Powell's choice has become exceptionally difficult. Compromise may mean short-term political benefits, but in the long run, it could damage the Federal Reserve's authority and credibility; while maintaining independence could expose him to further pressure and accusations from the Trump administration.
This dispute over interest rate cuts is not only a discussion of monetary policy but also a struggle between power, politics, and economic independence. Every decision made by Powell will be remembered in history, and how he balances the interests of all parties in this game will determine the future direction of the American economy, becoming a significant chapter in the history of the Federal Reserve.
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