Trump's Not-So-Subtle Attempt to Control the Federal Reserve: The Shadow Fed Chief saga
By Hannes Vogel
Trump proposes installing an alternate Federal Reserve leader, aiming to exert influence over the central bank's decisions.
Jerome Powell, the chairman of the Federal Reserve, isn't cutting it for Donald Trump. Trump wants a puppet central bank chief who'll lower interest rates on command, like in authoritarian countries. However, Powell's unwillingness to bow to Trump's pressure might soon lead to a power play that could destabilize the US economy and the dollar - all in the name of acceptance and loyalty.
According to the "Wall Street Journal," Trump is now seriously considering declaring a "shadow Fed chairman" as early as September or October, even though Powell is still in office until May 2026. This shadow Fed chairman would be Trump's personal enforcer, setting the market's expectations in line with his interest rate wishes. Despite Powell remaining the formal head, he'd effectively become a lame duck whose influence would wane considerably in the coming months.
Trump's Loyal Cabinet Member Wanted
The "independent" Federal Reserve is causing headaches for President Trump, who sees Powell as a thorn in his side. To circumvent premature dismissal, Trump might shell out the idea of a shadow Fed chairman – someone unwaveringly loyal to him and incentivized to manipulate market expectations. The "Wall Street Journal" suggests former Fed Governor Kevin Warsh, Trump's economic advisor Kevin Hassett, and even Treasury Secretary Steve Mnuchin are among the frontrunners for the position.
The shadow Fed chairman's role is two-fold. On one hand, they'd articulate monetary policy intentions publicly, influencing investors' expectations, and, on the other, apply pressure on the Federal Open Market Committee (FOMC) to toe these policies sooner than initially planned. This back-seat driving could give Trump de-facto control over US monetary policy, even if Powell remains in office.
A Shaky Power Grab
Trump's planned power play could backfire spectacularly. Markets hate uncertainty, and the premature declaration of a shadow Fed chairman could create throughout the markets, leading investors to abandon ship. As early as April, Saxo trading platform warned that a shadow central bank chief would be like two pilots wrestling for control mid-flight, causing panic that could derail the markets.
In the worst-case scenario, Trump could end up being a reckless pilot, steering the US economy and dollar towards ruin. Although the independence of the US central bank is a cornerstone of the global financial system, Trump's actions could seriously damage its credibility, weakening market trust in the central bank and potentially leading to loss of the dollar's role as the world's leading and reserve currency.
Source: ntv.de
- Jerome Powell
- Fed
- Donald Trump
- Central banks
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President Trump is actively considering appointing a "shadow Fed chairman" to replace Powell before his term ends next year. The shadow appointment aims to publicly designate Trump's preferred successor, effectively setting market expectations and pressuring the FOMC to align with Trump's policies earlier than planned[1][2].
This shadow chairman would communicate monetary policy intentions to influence market expectations, but the practical power of this position is uncertain since it relies on persuasion rather than formal authority[1]. The plan is seen as a "nuclear option" with significant legal and institutional risks that could destabilize the US economy and markets if a confrontation within the Fed escalates[1][2].
- The Commission, as a part of the government's policy-and-legislation process, has also been consulted on the draft budget that includes the potential appointment of a shadow Fed chairman, a move aimed at influencing the Federal Reserve's monetary policy and market expectations.
- As the controversy surrounding Trump's proposed shadow Fed chairman unfolds, finance experts and business analysts are closely watching the developments, as they could have a significant impact on the overall business climate and general news cycle.
- The politics surrounding the Federal Reserve and its chairman, Jerome Powell, have taken a fascinating turn with Trump's plan to appoint a shadow Fed chairman, a move that, if implemented, could disrupt the traditional functioning of central banks and bring about a new era of politics-influenced finance management.
