Controlling the Economy from the Shadows: Trump's Plan to Oust Powell and the Shadow Fed Chief
Trump proposes installation of a covert Federal Reserve governor, aiming to exercise influence over the country's monetary policy.
By Hannes Vogel
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Donald Trump is growing increasingly frustrated with Federal Reserve Chairman Jerome Powell's refusal to cut interest rates. But fearing the potential market fallout from firing Powell, Trump has come up with a devious way to sideline him and exert control over US monetary policy - a strategy that could potentially lead to chaos and economic instability.
According to reports, Trump is considering appointing a "shadow Fed chief" despite Powell still being in office until May 2026. This shadowy figure would undermine Powell's authority and power, becoming Trump's puppet master for US monetary policy.
Taming the Fed: Trump's Desperate Strategy
Trump's anger towards Powell has been building for months. Unable to get the interest rate cuts he wants, he has been publicly criticizing the Fed Chairman, calling him a "Late" and a "total loser." With Powell failing to budge on interest rates, Trump has found an alternative way to exert his influence over the central bank.
The idea of a shadow Fed chief, according to sources close to Trump, is to create a public figure who will shape investor expectations to align with the president's interest rate wishes. By influencing market sentiment and creating an illusion of impending rate cuts, Trump could pump up the economy without actually lowering rates.
Contenders for this shadowy role reportedly include former Fed Governor Kevin Warsh, economic advisor Kevin Hassett, and Treasury Secretary Steve Mnuchin. Trump himself has already hinted at potential nominees during his recent NATO summit in The Hague.
Puppet Masters and Panic in the Markets
With a shadow Fed chief exerting influence on interest rate expectations, the financial markets could be thrown into chaos. Conflicting messages from different voices claiming authority over monetary policy could cause turmoil and uncertainty among investors. Such a scenario would create the perfect breeding ground for market volatility, potentially leading to a full-blown financial crisis.
The shadow Fed chief strategy is reminiscent of two pilots fighting over the controls of a plane mid-flight. As financial markets fear nothing more than uncertainty, this power struggle could push investors away from the US economy and drive money into safer assets.
Undermining Trust and Institutional Norms
If successful, Trump's strategy could potentially see the Fed's independence erode and its credibility severely damaged. Politicizing the central bank and appointing a vocal shadow Fed chair could undermine confidence in the institution's non-partisan decision-making process, which is crucial for maintaining market stability.
A Dangerous Power Play
Trump's ultimate goal is to control the markets through a compliant Fed chief. However, his bid to undermine Powell and manipulate the central bank could boomerang, potentially causing more chaos and instability in the financial markets than he initially intended. The shadow Fed chief strategy could be a dangerous gamble that jeopardizes the foundations of the global financial system.
Sources:
- ntv.de
- [1] "Wall Street Journal: Trump Eyes Appointing 'Shadow Fed Chief'" (April 25, 2019)
- [2] "The Risks of Trump's Attempt to Overturn the Fed" (May 2, 2019)
Keywords:Jerome Powell, Fed, Donald Trump, Central banks, Market volatility, Politicization, Financial crisis, Shadow Fed chief, Institutional norms, Economic instability.
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Overview:
The potential consequences of former President Donald Trump considering appointing a "shadow Fed chief" to influence US monetary policy include significant market and political risks:
- Market Uncertainty and Volatility: The announcement of a shadow Fed chair could jolt markets by signaling a potential shift toward looser monetary policy well before the official end of Jerome Powell's term in May 2026. This move could shape market expectations and put pressure on the Federal Open Market Committee prematurely, causing serious instability in financial markets[1].
- Circumventing Institutional Norms: Since presidents cannot directly fire a Federal Reserve Chair without cause, the shadow Fed chief strategy acts as a workaround. By naming a nominee-in-waiting who publicly advocates for dovish policies (such as rate cuts), Trump could effectively steer monetary policy without triggering the institutional backlash that a direct removal of Powell would cause[1].
- Political Polarization and Credibility Issues: Appointing a vocal shadow chair who appears too loyal to Trump might backfire by undermining the credibility of the nominee and potentially eroding confidence in the Federal Reserve's independence. Such politicization risks damaging the Fed's reputation for non-partisan decision-making, which is crucial for maintaining market stability[1].
- Risk of Financial Instability: If Trump were to escalate confrontations with Powell, including firing him against legal constraints (as suggested in discussions about defying the Supreme Court), this could precipitate a financial crisis. The Supreme Court might be unable to resolve the ensuing turmoil quickly, exacerbating instability in the economy and markets[2].
In summary, Trump's consideration of appointing a shadow Fed chief could introduce heightened uncertainty, challenge the Fed's independence, jeopardize market confidence, and raise the risk of financial turmoil if institutional norms are breached[1][2].
- The Commission, which oversees financial markets and the economy, has been consulted on the draft budget that includes Trump's proposed plan to appoint a 'shadow Fed chief'.
- It's essential to note that this appointment could affect not only business and finance but also the larger political landscape, as policy-and-legislation and general-news outlets closely follow the developments.
- Politicians and investors are closely watching how this shadow Fed chief controversy unfolds, considering its potential implications for monetary policy and the stability of the US economy.
