1. Recently, President Trump has intensified his criticism of Federal Reserve Chairman Powell, accusing him of acting too slowly regarding interest rate cuts; 2. The reality is that even if Powell were to resign as Chairman of the Federal Reserve now, Trump might not be able to quickly get the interest rate cuts he wants; 3. Analysts believe that due to the collective decision-making mechanism of the Federal Reserve and other reasons, the White House cannot significantly influence borrowing costs in the short term.
Recently, President Trump has intensified his criticism of Federal Reserve Chairman Powell, accusing him of acting too slowly on interest rate cuts. He also called for Powell to resign and stated that he would nominate “someone who wants to lower interest rates” to take over as Federal Reserve Chairman.
However, the reality is that even if Powell resigns as Federal Reserve Chairman now, Trump might not quickly get the interest rate cuts he desires. Analysts believe that considering the collective decision-making mechanism of the Federal Reserve and various other reasons, the White House cannot significantly impact borrowing costs in the short term.
The Chairman of the Federal Reserve only has one vote in the voting process.
Trump hopes to replace Powell with someone who can act according to the President’s wishes in order to lower interest rates. However, Powell’s term as Federal Reserve Chairman does not end until May 2026, and he insists that he will not resign early.
Even if Powell really resigns, considering that the new Chairman only has one vote in the Federal Reserve’s interest rate decision-making, the decision to cut rates is not something he can decide alone.
The monetary policy decision-making body of the Federal Reserve is the Federal Open Market Committee (FOMC). The FOMC consists of 12 members, including 7 members of the Board of Governors of the Federal Reserve System, the President of the New York Federal Reserve, and 4 Presidents of local Federal Reserve Banks. As one of the members of the Board of Governors, the Chair of the Federal Reserve, like the other governors and the President of the New York Federal Reserve, has permanent voting rights, possessing one vote in FOMC meetings.
Adjusting interest rates requires the support of a majority of the FOMC members, which means the new Chairman must convince the majority of his colleagues to support the rate cuts.
The Federal Reserve defends its independence.
If the other 11 FOMC members believe that the interest rate cut is for obvious political purposes, the newly appointed Chair of the Federal Reserve will find it difficult, if not impossible, to persuade them to support the cut.
Currently, an obvious majority of FOMC members oppose cutting interest rates before September. They believe more time is needed to determine whether Trump’s trade war is raising inflation.
Harvard University economist and former Chair of the White House Council of Economic Advisers, Jason Furman, stated: “The Chair of the Federal Reserve only holds one vote out of 12, and a politically colored Chair will not gain majority support.”
Since the Federal Reserve broke free from the Treasury’s pressure in the 1950s, Federal Reserve officials have been carefully maintaining their independence. They will not easily give up defending their independence.
The Board will not be reshaped quickly.
Trump may not have the opportunity to completely reshape the Federal Reserve Board. Each of the seven governors has a term of 14 years, and terms are staggered to prevent any one president from gaining too much influence.
During Trump’s remaining presidential term, there is only one Board member—Adriana Kugler, appointed by the Democrats—whose term is about to expire. The other three governors appointed by the Democrats may serve until the 2030s.
Even after Trump appoints a new Chairman of the Federal Reserve, Powell can still remain on the board if he wishes, as he has three years left in his 14-year term as a Fed governor.
The Chairman of the Federal Reserve usually resigns after no longer leading the Fed, but there is one historical exception: former Fed Chairman Marin Eckles.
In 1948, under pressure from President Truman, Eckles resigned from the position of Chairman of the Federal Reserve, but he stayed on for another three years as an ordinary governor. During this time, he was a thorn in Truman’s side.
Unable to directly control interest rates.
The Federal Reserve cannot simply wave a magic wand to lower interest rates for most forms of borrowing, such as mortgages, credit cards, or car loans.
Instead, the Federal Reserve indirectly influences borrowing costs through a little-known short-term interest rate that only banks use, ensuring the financial system runs smoothly.
The connection between the two (short-term rates and rates for most forms of borrowing) is by no means tight.
Sometimes, when the Federal Reserve lowers the short-term federal funds rate, long-term rates, such as U.S. Treasury bonds or mortgage rates, may actually rise.
In fact, even after the Federal Reserve significantly lowers the federal funds rate in 2023 and 2024, the 30-year fixed mortgage rate remains as high as 6.67%.
Wall Street has a significant voice.
The greatest impact on long-term rates comes from inflation. If investors believe inflation is worsening, even if the Federal Reserve lowers short-term borrowing costs, they will demand higher long-term rates to compensate for the risks they bear.
If the new Federal Reserve chairman lowers interest rates at Trump’s request, investors may believe this will lead to inflation, thus demanding higher rates.
Stephen Stanley, chief economist at Santander Capital Markets, stated in a report to clients, “If the market is concerned that the Federal Reserve will not fulfill its responsibilities regarding inflation, you will see long-term yields rise.”
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