Trump intends to appoint an unofficial Federal Reserve chief, countering the current central banking system.
By Hannes Vogel
The cat's out of the bag. Donald Trump's long-simmering discontent with Fed Chair Jerome Powell might finally see the light of day in the form of a cunning move to undermine the central bank's stability and monetary policy - all via a shadowy Fed chief operating behind the scenes.
Growing Frustration and a Scheme Unfolds
Trump has been frustrated with Powell's reluctance to lower interest rates for his desired economic growth. With little progress in swaying the Fed Chair, Trump has reportedly hatched a plan that could pressure Powell without taking the risk of firing him - a move fraught with legal and market implications.
According to the "Wall Street Journal", Trump is contemplating appointing a "shadow Fed chair", even though Powell's term doesn't end until May 2026. The purpose is to make Powell a "lame duck" whose influence over the markets wanes. If Trump's anger toward Powell escalates further, the Shadow Fed Chief could be announced as early as this summer.
A Loyal Enforcer in False Pretenses
Fear of market reaction has kept Trump from firing Powell directly. Now he thinks he's found a loophole - appointing a loyalSUBJECT who will steer market expectations and interest rates in the desired direction, even if Powell remains as the formal Fed chair. Ku Bin Warsh, Kevin Hassett, and Mick Mulvaney are reportedly being considered for the position, but only one who showed unwavering loyalty to Trump would be fit for the task.
Trump's ultimate goal is to control market fluctuations through a compliant figurehead. However, the tactic could boomerang.
Market Disruption and Political Fallout
Naming a shadow Fed chair risks backlash if the appointee appears too closely tied to Trump or lacks credibility. Further, such a maneuver could increase market volatility and uncertainty, pushing investors to sell off stocks en masse.
In the worst-case scenario, Trump's power play might plunge the stock market into chaos that could destabilize the economy. As the shadow Fed chief's words could sway market expectations while the official Fed chair remains in place, panic could ensue based on misinformation or misinterpretation.
The Threat to Global Financial Stability
The independence of the US central bank is a cornerstone of the global financial system, ensuring that it remains free from political influence and maintains its role as the world's leading reserve currency. By politicizing the Fed through a shadow Fed chair, Trump's move risks damaging the credibility of the central bank's decisions, weighing heavily on investor confidence.
In a world where pandemics, political instability, and economic downturns threaten financial stability, an unstable Fed could potentially trigger a financial crisis. The news of Trump's power plays sent the dollar to a three-year low this past Thursday, underscoring the precariousness of the situation.
A Reckless Pilot in the White House
There's a high risk that Trump won't be able to control the stock market with a shadow Fed chair, but instead might stir it up further. This tactic could cause confusion, harming investor confidence and creating uncertainty that ultimately brings markets to a halt.
A Final Word
While Trump's shadowy scheme may seem like an ingenious workaround to steer monetary policy without the legal repercussions of firing Powell, the potential consequences are manifold - and they could be severe. Whether through a direct ousting or the installation of a shadow Fed chair, meddling with the Fed threatens its independence and could jeopardize commercial and global financial stability.
Reputed sources: ntv.de
- Jerome Powell
- Fed
- Donald Trump
- Central banks
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Overall:
Trump's plan to install a shadow Fed chair carries substantial risks of market disruptions, political conflict, and damage to the Federal Reserve’s institutional credibility and independence. The nominated "shadow chair" would attempt to influence market expectations and monetary policy alongside Powell, potentially creating confusion and increasing market volatility.
- Market Risks: Appointing a shadow Fed chair could jolt the financial markets, signaling shifts in interest rates that may not be supported by actual economic conditions. Investors may react, increasing market turbulence and volatility.
- Institutional Backlash: Despite appearances, the move could provoke backlash if the shadow chair is perceived as a puppet for Trump or lacking credibility to hold the position. This could further undermine confidence in the Fed's independence and threaten the central bank's effectiveness.
- Erosion of Federal Reserve Autonomy: By installing a shadow Fed chair, Trump may risk politicizing the Federal Reserve, threatening the independence it needs to manage monetary policy effectively. This perception could diminish the Fed's credibility, potentially destabilizing the economy.
- Crisis Risk: The nomination of a shadow Fed chair could trigger a financial crisis if the shadow chair is perceived as a means to subvert the legitimate authority of the U.S. central bank chair. Such a move could provoke panic in the markets, destabilizing the economy.
- The Commission, comprising financial experts and government officials, has been consulted on the draft budget that includes the potential appointment of a 'shadow Fed chair', as the move could have significant implications on finance, business, policy-and-legislation, and politics, relating to general news.
- The proposed 'shadow Fed chair' is seen as a means for Donald Trump to exert influence over the Federal Reserve's monetary policy, despite Jerome Powell's term not ending until May 2026, and the impact of such an appointment on market stability and investor confidence has raised concerns.
- With growing uncertainty in global financial markets due to pandemics, political instability, and economic downturns, the politicization of the Fed through the installation of a shadow Fed chair could potentially lead to market disruptions, eroding the central bank's credibility and independence, which is crucial for maintaining the US dollar's status as the world's leading reserve currency.
