Trump has admitted that his push for the Federal Reserve to lower interest rates, he’s actually making it harder for them to do so. He might also be weakening the next chair’s authority before they even take over. By promising to choose “somebody that wants to cut rates,” Trump risks weakening the position of the next Fed leader before they even take office, according to a Bloomberg report. Observers say markets and the public may doubt whether that person would defend the Fed’s independence or bow to the president’s wishes. “People will wonder what sort of promises or implicit promises or winks or nods may have gone on in order to get the nomination,” said Jon Faust, a Johns Hopkins fellow and former adviser to Powell. “I think that’s very bad for the next Fed chair. I think that’s very bad for the credibility of the Fed.” Trump says inflation is low right now, and other big economies have cut their rates, so he wants the U.S. central bank to do the same. He has also noted that the Fed was slow to raise rates when inflation surged after the Covid-19 pandemic and that it can always hike again if prices start rising too quickly. Kush Desai, White House spokesperson, defended Trump’s comments, saying the president is exercising his First Amendment right “to voice his concern about flawed policymaking, and that includes monetary policy that’s holding our country’s economic resurgence back.” Powell has largely stayed silent on Trump’s criticism. Instead, he’s stressed that Fed officials are focused on their legal mandate, which is controlling inflation, supporting employment, and safeguarding financial stability. “I have a little more than 10 months left on my term as chair, and all I want, and all anybody at the Fed wants, is to deliver an economy that has price stability, maximum employment, financial stability,” he said on July 1. For now, Powell and his team aren’t cutting rates. They want to see how Trump’s tariffs and other policies affect the economy before making a move. That caution has angered the president, and some of his allies have joined the fray. Trump’s pressure may backfire and keep rates high “I fully understand that my strong criticism of him makes it more difficult for him to do what he should be doing, lowering Rates,” Trump wrote last month. Economists note that history shows the dangers of political pressure on central banks. When Paul Volcker became Fed chair in 1979, he took office partly to reverse the Fed’s earlier reluctance to fight high inflation, a reluctance tied to pressure from President Richard Nixon. Volcker’s tough stance restored the Fed’s standing on stable prices and set the stage for decades of low inflation. That experience, along with similar cases worldwide, has led experts to conclude that independent monetary policy tends to produce better economic outcomes. “If you believe that the central bank is going to make decisions that even marginally tilt more toward political pressures, you’re going to expect higher inflation, more volatility in the macroeconomy,” said Julia Coronado, founder of MacroPolicy Perspectives. Coronado’s expectation for the next Fed chair is to be less committed to the institution’s independence than recent chairs. “It’s not going to be some arsonist that comes in and lights the institution on fire. I think it’ll be more incremental but still meaningful,” she said. Trump is considering three or four candidates and will make his choice “very soon.” “If I think somebody’s going to keep the rates where they are or whatever, I’m not going to put them in. I’m going to put somebody that wants to cut rates,” he said last month. Desai said the president “will continue to nominate the most qualified individuals who can best serve the American people.” Treasury Secretary Scott Bessent , reportedly in the running, said on June 30 that the administration will name Powell’s successor in the coming weeks and months. The rest of the candidates include Kevin Warsh, a former Fed governor; Christopher Waller, a present Fed governor; Kevin Hassett, the White House economic adviser; and David Malpass, the former World Bank president. Scott Bessent, Hassett, and Malpass all say the Fed should have cut rates already. Waller, pointing to recent economic data, said a rate cut could be warranted as early as this month, though he emphasized the need to keep monetary policy free from politics. KEY Difference Wire helps crypto brands break through and dominate headlines fast
