Frequent criticism of Powell: Where will the Federal Reserve go after Trump's re-election?

According to the Zhitong Finance APP, Trump's victory in Tuesday's presidential election has brought profound uncertainty to the economic outlook of the United States, which may alter the Federal Reserve's policy decisions in the coming months and raise questions about how Trump might exert pressure on the Fed during his second term in the White House.

During the campaign, Trump promised to impose tariffs more aggressively on U.S. trading partners, deport millions of illegal immigrants, and continue the tax cuts from 2017. Once implemented, these policies could drive up prices, wages, and the federal deficit.

This will complicate the Fed's work, as officials strive to bring inflation down to the 2% target while protecting the job market. In this delicate task, if Trump publicly criticizes Fed Chairman Jerome Powell again as he has in the past, the Fed may find itself in an awkward political spotlight.

Fed officials are expected to lower the benchmark interest rate by 0.25 percentage points on Thursday, following a 0.5 percentage point cut in September. According to the median forecast released in September, they expect another 0.25 percentage point cut in December this year and a further one percentage point cut in 2025.

However, policymakers may handle the timing and magnitude of rate cuts more cautiously, as they need to assess how Trump's economic proposals will translate into actual policy. Derek Tang, an economist at LH Meyer/Macroeconomic Policy Analysis, stated, "They may think that higher inflation risks due to tariffs or reduced immigration could arise in the coming years. Their mindset might be, 'By slowing down the rate cuts a bit, we can have more time to observe inflation expectations and the actual state of the labor market.'"

Independence of the Federal Reserve

Trump frequently criticized Powell during his first presidential term, and such rhetoric has continued during the recent campaign. Trump has stated that he believes the president should have a say in the Fed's interest rate policies, but he also indicated that he should not directly order the Fed on what to do, rather he has the right to express opinions on the direction of interest rates.

Trump's remarks have raised concerns that he may attempt to limit the Fed's independence, breaking with the long-standing practice of the central bank independently formulating monetary policy. During his first term, Trump explored the possibility of firing Powell, an action that legal scholars deemed unprecedented and legally contentious.

Nevertheless, the Fed has mechanisms in place to protect itself from presidential interference. For example, the president's appointments to the Fed's board require Senate confirmation, and congressional committees oversee the Fed. Powell and other officials have repeatedly assured the public that their decisions will not be influenced by political factors.

However, when the president publicly and frequently criticizes the Fed, it still raises questions. Sarah Binder, a political science professor at George Washington University, stated, "Although the Fed has structural independence, if people start to doubt whether it will fulfill its commitments, then no structural safeguards can fully protect it."

Some of Trump's advisors have dismissed concerns that he might interfere with the Fed. Trump's economic advisor and CEO of hedge fund Key Square Group, Scott Bessent, stated, "He doesn't want to personally intervene in decision-making; he just wants his voice to be heard." "He understands the anchoring role of central bank independence on long-term inflation expectations."

Kevin Hassett served as the chairman of the White House Council of Economic Advisers during Trump's first presidential term. In an interview with Goldman Sachs in October, he stated that speculation about coordination between the Federal Reserve and the executive branch "should be taken seriously, and the next administration should choose a Federal Reserve leadership that remains neutral."

In the coming years, Trump's most direct way to influence the Federal Reserve will be through key personnel appointments. He has indicated that he will not reappoint current Federal Reserve Chairman Jerome Powell, whose term ends in May 2026. Additionally, Federal Reserve Governor Christopher Waller's term will expire in January 2026, while Powell's governorship will end in January 2028. Trump will have the opportunity to appoint new candidates for these positions.

Several sources close to Trump's campaign team have indicated that Hassett may become Trump's final choice for chairman.

Furthermore, the newly elected president can also nominate a vice chairman responsible for oversight, a role that holds significant power in regulating the nation's largest banks. Michael Barr, currently appointed by President Biden, will see his term end in July 2026. Barr has faced strong criticism from the banking industry and Republicans for proposing an initial plan to raise bank capital requirements, and the Federal Reserve and other regulatory agencies are revising that plan.

Michael Feroli, Chief U.S. Economist at JP Morgan, wrote in an October research report that officials who have held this position in recent administrations often resign shortly after a president from the opposing party is elected.

Feroli noted that if Barr follows this precedent after a Trump victory, the new president could quickly influence regulatory policies, although the impact on monetary policy may not be as immediately apparent