Trump stated: The next chairman of the Federal Reserve must be a "super dove," and the candidate will be announced soon

On Wednesday local time, U.S. President Trump clearly stated in a national address that the next Federal Reserve Chairman must be someone who believes in "significant interest rate cuts" and promised to announce this key appointment decision soon. This statement once again highlights Trump's dissatisfaction with the current monetary policy and his intention to exert influence over the independence of the Federal Reserve.

Trump stated in his speech, "I will soon announce our next Federal Reserve Chairman, and this person believes in significantly lowering interest rates, which will further reduce mortgage rates." Currently, the Federal Reserve's benchmark interest rate range is 3.5%-3.75%, while Trump has previously called for rates to be lowered to a "crisis level" of 1%.

In an interview with The Wall Street Journal last week, he indicated a preference for former Federal Reserve Governor Kevin Warsh or White House economic advisor Kevin Hassett to take on the role of Chairman. More notably, Trump explicitly stated that the next Federal Reserve Chairman should consult with him on interest rate decisions, breaking the traditional practice of presidents not intervening in rate-setting.

All three candidates support rate cuts, but to varying degrees

The known finalists include White House economic advisor Kevin Hassett, former Federal Reserve Governor Kevin Warsh, and current Federal Reserve Governor Christopher Waller. All three advocate for interest rates to be lower than the current levels.

However, none of the candidates have explicitly stated they would push the Federal Reserve to lower rates to the level Trump has requested. Trump has called for rates to be lowered to a crisis level of 1% in some cases, but even his most recent appointee, Governor Stephen Moore, does not advocate for rates to be lowered to such a low level.

On Wednesday, Trump continued interviewing candidates and met with Waller. Waller is one of the earlier advocates for rate cuts among current Federal Reserve policymakers, but he is also a staunch defender of the Federal Reserve's independence.

According to a previous article from Wall Street Insight, Waller stated on Wednesday that as the job market weakens and inflation is controlled, the Federal Reserve still has room to cut rates by 50 to 100 basis points, but there is no need to rush into action, and rates will be moved towards neutral in a steady and gradual manner. He believes that the job market has not shown a cliff-like decline and that stable inflation expectations provide conditions for moderate rate cuts, with the Federal Reserve maintaining a balance between steady growth and controlling inflation.

Trump calls for the Federal Reserve Chairman to consult with him on rate decisions

Last week, Trump told The Wall Street Journal that he believes the next Federal Reserve Chairman should consult with him on interest rate setting. This request deviates from the traditional practice of presidents leaving rate-setting authority to the Federal Reserve.

"Typically, this practice is no longer followed. But in the past, it was routine, and it should be so now," Trump said. "This does not mean—I do not think he should do exactly what we say. But we are indeed—I am a smart voice that should be heard."

This statement has raised concerns about the independence of the Federal Reserve. The independence of the Federal Reserve is seen as a key factor in maintaining the effectiveness of monetary policy and market confidence.

Hassett previously stated that if selected to lead the Federal Reserve, he would consider the president's policy opinions, but the central bank's interest rate decisions would remain independent. Hassett explicitly refuted the notion that the president's opinions carry equal weight to those of the FOMC voting members He stated that policymakers are free to reject the president's opinions and "vote differently." Hassett said, "He won't carry any weight. It's just that if his opinion is good and data-driven, then his opinion is important."

Limited Impact of Rate Cuts on Mortgage Rates

Trump has repeatedly expressed a desire to lower mortgage rates, but the rates controlled by the Federal Reserve have a limited impact on long-term borrowing costs. Mortgage rates are more influenced by long-term rates, such as the yield on the 10-year U.S. Treasury bond, which is less affected by the Federal Reserve.

The yield on the 10-year Treasury bond is primarily driven by investors' expectations of U.S. economic growth and inflation, showing little overall change over the past year. Since Labor Day, mortgage rates have remained in the range of 6.3%-6.4%, with almost no signs of decline.

This means that even if the Federal Reserve significantly cuts rates at Trump's request, it may not fulfill his political commitment to lower mortgage costs.

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