[Global Focus] Trump Pushes for Rate Cuts as Powell Holds Firm

'Economic Stimulus' vs. 'Price Stability'...
Interest Rate Disputes Repeated Since the First Term
Trump Reignites 'Powell Pressure'...
Even Early Nomination Rumors for a Successor
Trump's 'Fed Shaking'...
Dollar Value Hits Three-Year Low
Debate Over Independence and Credibility Leads to Mixed Asset Markets...
"Loss of Trust Means Capital Outflows"

The conflict between U.S. President Donald Trump and Federal Reserve (Fed) Chair Jerome Powell over interest rates is intensifying. This is a renewed manifestation of the "interest rate war" that also erupted during Trump's first administration, when he demanded rate cuts and Powell, emphasizing the independence of monetary policy, clashed with him.

"Trump's public criticism of Powell has turned monetary policy into a political weapon, raising concerns that the independence of the Fed, which is at the core of economic credibility, is under threat." As noted by the Financial Times (FT) of the UK, the interest rate war between President Trump and Chair Powell is not merely a personal conflict but a test of the balance between politics and the economy. If the Fed's independence collapses and monetary policy is reduced to a political tool, market predictability will decrease and asset markets will inevitably become unstable.

'Economic Stimulus' vs. 'Price Stability'... Interest Rate Disputes Repeated Since the First Term

◇ 'Economic stimulus' vs. 'price stability'... Interest rate disputes repeated since the first term = The conflict over interest rates between President Trump and Chair Powell is not new. Previously, in November 2017, during his first term, President Trump appointed Powell as Fed Chair, expecting him to support his economic policies. However, Powell took a lukewarm stance on Trump's calls for rate cuts, and Trump expressed strong dissatisfaction, leading to a deterioration in their relationship. Despite Trump's repeated urgings for rate cuts, Powell maintained a cautious approach out of concern for economic overheating and asset market bubbles.

President Trump, who prioritized economic stimulus, and Chair Powell, who regarded price stability as the most important task, were bound to clash. An infuriated Trump hurled blunt insults at Powell, calling him a "dummy" and saying "the only problem with our economy is the Fed," even hinting at his dismissal. However, it was not possible to dismiss the Fed Chair for political reasons during the term, so this did not materialize. Trump is the only president to have directly pressured a Fed Chair he appointed to resign.

Trump Reignites 'Powell Pressure'... Even Early Nomination Rumors for a Successor

Having secured a second term, President Trump is once again targeting Chair Powell, urging interest rate cuts this year. As economic uncertainty increased due to the Trump administration's high-tariff policies, he sought to offset this through monetary policy. Chair Powell, who was reappointed during the Joe Biden administration in 2022, has kept rates unchanged for four consecutive meetings through last month since the start of Trump's second term in January this year.

Since the beginning of the year, President Trump has repeatedly pressured for rate cuts, publicly criticizing, "I don't know why he's hesitating in a situation like this." However, Powell avoided direct confrontation, maintaining a cautious stance, saying, "Economic indicators are positive, but we need to fully confirm trends in prices and employment, and it is premature to cut rates."

In February, Trump escalated his attacks, saying, "Powell is the worst I've ever seen and is ruining the U.S. economy," while Powell emphasized the independence of monetary policy, stating, "Slowing inflation is welcome, but we are closely monitoring new risk factors such as tariffs."

The pressure on Powell to cut rates continued in March. President Trump made his personnel intervention intentions explicit, saying, "If Powell can't do it, I will choose someone myself to cut rates." In response, Powell argued, "Clear data is needed for policy changes, and the balance between asset market stability and the real economy is important."

After Trump claimed, "If I weren't president, the Fed would have raised rates two or three times already," implying he was preventing rate hikes, Powell drew a line, stating, "Regardless of the president's remarks, we are focused solely on our legal mandates of price stability and maximum employment."

As Powell remained unmoved despite repeated pressure for rate cuts, Trump increased the pressure by suggesting he would nominate Powell's successor early. On June 25, the Wall Street Journal (WSJ) reported that President Trump was considering announcing a successor as early as September or October this year, rather than waiting for Powell's term to end in 2026.Leading candidates for the post include former Fed Governor Kevin Warsh, White House National Economic Council Director Kevin Hassett, and Treasury Secretary Scott Besant. Secretary Besant went a step further, publicly suggesting in the media the idea of designating a "shadow (preliminary) Fed Chair" in advance to guide the market.

Reuters reported that some analysts have raised concerns that if a successor nominated in this way effectively acts as a "shadow Fed Chair," it could become difficult to implement appropriate monetary policy if inflation surges again. The Wall Street Journal (WSJ) also pointed out that market experts are concerned that an early-nominated successor could effectively become a "shadow Fed Chair," weakening Powell's policy authority, and that such political intervention could undermine market confidence in inflation control if inflation rises again.

Trump's 'Fed Shaking'... Dollar Value Hits Three-Year Low

Rumors of an early nomination by President Trump were interpreted by the market as a signal that the Fed would eventually cut rates, which immediately led to a weaker U.S. dollar. The dollar index, which measures the value of the dollar against the currencies of six major countries including the euro and yen, fell to the 97 level at one point on June 25, marking its lowest since 2022. The dollar index has dropped about 10% so far this year.

This is analyzed as being due to heightened expectations for a base rate cut. Bloomberg reported, "The fact that Trump is moving up the timeline for the next Fed Chair appointment is seen as a signal of strengthening political control over the Fed rather than respecting its independence, fueling expectations of an early rate cut."

According to CME FedWatch, the interest rate futures market is currently pricing in a 20% chance of a rate cut this month, up slightly from 18.6% a week earlier. The probability of a cut by September is as high as 75.9%, reflecting heightened expectations for a rate reduction.

As the dollar weakened following the WSJ report, the White House clarified the next day, June 26, that a decision on Powell's successor was not imminent. The Financial Times (FT) reported that the White House stated, "The president reserves the right to change his mind, but the decision on the Fed Chair nomination is not imminent," adding, "The president has many good options for the next Fed Chair."

Debate Over Independence and Credibility Leads to Mixed Asset Markets... "Loss of Trust Means Capital Outflows"

The standoff between the two men has gone beyond a simple difference of opinion, sparking debate over the independence and policy credibility of the Fed. Moreover, it is having a tangible impact on asset markets, becoming a case where politics shakes the economy. The WSJ wrote, "Ultimately, the conflict between Powell and Trump is not just a debate over the direction of interest rates, but is once again putting the core principles of Fed independence and the political neutrality of monetary policy?fundamental to the U.S. financial system?to the test."

There are concerns that if confidence in the Fed's policy direction is shaken, it could lead to foreign capital outflows and increased instability in the bond market.

Aaron Hill, chief strategist at FP Markets, warned, "If the perception grows that Trump is trying to appoint a chair for political purposes, the Fed's core asset of 'apoliticality' could collapse." In fact, there is a precedent: when President Richard Nixon pressured the Fed for low interest rates in the 1970s, inflation soared.

Experts interpret this situation as a warning sign of the politicization of monetary policy, going beyond a simple personnel clash. If Trump's pressure materializes and the Fed's independence is weakened, the market will inevitably question the objectivity and predictability of future policy decisions.

Kevin Wallace, a professor at the Yale Institute for Fiscal Policy, pointed out, "If interest rate decisions are driven by the president's political needs rather than economic indicators, the U.S. can no longer maintain its status as the global benchmark interest rate country."

There are also concerns that the dollar's status as the key global currency could be challenged. David Morrison of Trade Nation said, "Trump's tariff policies and politicized pressure on interest rates are undermining global investor confidence in the dollar," adding, "This could lead to reduced demand for U.S. Treasury bonds and ultimately burden the economy."