Last week was a particularly testing one for Jay Powell. Donald Trump resumed his criticism of the US Federal Reserve chair for not cutting interest rates faster by describing him as a “stupid person”. On Wednesday, US media reported that the president might nominate a new chair well before Powell’s term expires in May 2026. The White House later said no announcements were “imminent”, helping to quash a sell-off in the dollar. The rumours around his job rounded off a week that had started with other members of the Fed’s rate-setting committee pushing for cuts too.
If Trump wants rate cuts, his interventions and chaotic policy agenda are not helping his cause. For starters, should the president reveal his successor to Powell well before his term elapses, then it raises the worrying prospect of a “shadow Fed chair” who could signal a more dovish direction on rates from the sidelines. That would stoke confusion in markets, and distort the transmission of monetary policy. Right now it is also driving speculation of a loosening in the future policy stance. As recent market moves have shown, that weakens the dollar and boosts the case for higher rates at the margin.
Then there is the immediate uncertainty around the president’s tariff policies. At its meeting in mid-June, the Fed held rates at 4.25 to 4.5 per cent. But its policymakers were split on where they should go next. Recently two rate-setters — including Christopher Waller, a leading candidate to succeed Powell — said that the Fed ought to consider cuts as soon as next month. After all, there has been only a slight uptick in US inflation readings since the president’s April 2 tariff announcements. High rates are constraining growth. Credit card delinquencies are at their highest in over a decade and annual wage growth on job postings are at their joint lowest in four years.