Is a Clash of the Titans, Trump vs. Powell, Inevitable?

Is a Conflict Between Trump and Powell an Inevitable Event?

The question for me is not if but when President Trump and Fed Chair Powell will clash over monetary policy.

Judging by history, Trump favors lower interest rates as his focus is on boosting the economy.

Powell, on the other hand, has no
Incentive to buckle under any political pressure to lower rates prematurely. His term ends in April 2026 and he has indicated there are no plans to step down before then.

Trump, meanwhile, has indicated he is not looking to fire Powell (he has no authority to do so but we are living in a new political world) and reports are that a replacement for Powell when his term expires is already being compiled. There has also been chatter that the new administration is already looking at ways to erode Fed independence, something Powell has fiercely defended in recent comments.

Bank forecasts, meanwhile,  are already pushing back timing for the next rate cut, Bank of America came out Friday after the December jobs report with a call for no change in rates in 2025.

This has seen U.S. bond yields continue to rise  and President elect Trump has not even taken office yet. In this regard, proposed policies (e.g. tariffs, tax cuts) that are seen as potentially fueling already sticky inflation would cause an independent Fed to dig in its heels further.

US 10 Year Bond Price Daily Chart (inverse with yield)

Furthermore, rising bond yields run a risk to the buoyant stock market. As we have seen Trump often measures his economic success by how equities are  doing.

US500 Daily Chart

It has also boosted the already uber strong dollar as forex traders react to better economic data and rising yields. If memory serves Mr Trump sees a strong currency as a headwind for the economy.

USDX (US DOLLAR INDEX) DAILY CHART

So, President-elect Trump  inherits a growing (not overheating) economy, sticky inflation and an independent Fed showing no signs of rushing to cut interest rates where his proposed policies could force the central bank to stiffen its resolve.

With recent economic data supporting a generally cautious approach by Fed officials to cutting rates, it seems to me a clash of the two Titans is inevitable.

How this plays out and the impact on markets is for a future discussion. However, it seems to be just a matter of when, not if Trump and Powell bump heads ax they seem to be on an eventual collision course. So buckle up your seat belts for potentially could be a wild ride.

Jay Meisler, co founder global-view.com

[email protected]

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