Trump Considers Shadow Fed Chair
What happened?
According to an overnight Wall Street Journal article, President Trump is considering pulling forward the nomination date for the next Fed chair from late this year to the summer, in order to increase the pressure on current chair Jerome Powell. The calculus is that the earlier the market knows who will follow from Spring 2026, the less relevant Powell's current interest rate decisions will be as the market starts focussing on his successors views and commentary.
Source: Yahoo FinanceSourceSource
Why does this matter?
Powell's intransigence: Powell was quick to cut interest rates by 50bps in summer '24 on a headfake in labor market data, while inflation was still high. Now the reverse applies. The Fed is not cutting rates even though many data points show labor market weakness, while inflation has cooled considerably.
Fed independence: This has drawn Trump's frequent ire. He wants rate cuts so the budget deficit shrinks due to lower interest cost. His attacks on Powell and now the move to install a "shadow chair" go against the doctrine of an independent central bank.
What's the counterpoint?
Powell's main argument is that there may be an inflation rebound in the pipeline due to tariffs, which take several months to show up in data, most likely by July/August. However, currently there are only few signs of this rebound materializing, cf this recent finformant view.
finformant view
Trump is probably right that the Fed should cut now. The move to establish a "shadow chair" goes some way to achieve this indirectly, signalling rates will be cut once Powell is gone. This should be supportive of asset prices and bullish for bonds. The damage to Fed credibility however is bearish for the US Dollar.