Unlock the White House Watch watch newsletter for free
Your guide on what Trump's second term for Washington, Business and the World means
A few years ago, shortly after Jay Powell was appointed President of the American Federal Reserve, I spotted him seated in a meeting of central bankers. He looked like the SWOT class: while his counterparts chatted nonchalantly, Powell was seated in the front row, taking with diligence notes during each speech.
The reason? Since Powell lacked doctorate in economics and / or professor boasted by predecessors such as Ben Bernanke (his previous career was in law and finance), he was doubly eager to “prove” his references. It therefore seemed particularly impatient to be a good steward of the Central Bank, always aware of the way he could be judged in financial history books.
Donald Trump should note it. In recent days, the American president has Powell on his alleged reluctance to loosen politics, nickname it “M. Too Late “and” A Major Loser “on social networks.
A cynic could consider this as a political kabuki. After all, Trump will need someone to blame if his pricing policies release a recession, as seems likely, and Powell is an easy social media scapegoat. But, Kabuki or not, investors are (rightly so) very shaken: dollar prices, bonds and shares have all tumbled together, Which is very unusual.
Doubly, since the attack on the Fed was Apparently approved Friday by Kevin Hassett, director of the National Economic Council. Hassett is considered one of Trump's most orthodox economic advisers and previously supported Fed policies.
While the markets are established, investors should consider three points. First, Powell is extremely unlikely to capitulate, given its personal characteristics – and this desire to be a steward diligent of monetary policy. Indeed, I expect him to go with The Wire to serve his mandate as a Fed chair, which ends in 2026, and probably his seat on the Council of Governors, which ended in 2028.
Second, various aspects of the Fed mandate have different levels of legal defense. On January 20 And February 18 This year, the White House has published two decrees which seem to undermine control of the central bank on financial regulations.
The Fed has not yet challenged this in public. It's notable. It is perhaps because many lawyers believe that it is on trembling legal ground, or because there is less emergency since there is already common ground between the White House and the Fed, for example, the need to reform the rules concerning the leverage of the banks.
However, this also underlines another point: Fed officials think that their priority is to defend their mandate around monetary policy at all costs. And here, unlike financial regulations, fed lawyers think they are on a very solid ground.
One of the reasons is that there is a legal decision of the 1930s which seems to protect the independence of agencies. And although it is currently testedThe Constitution also gives the congress – not to the president – the authority “To corner of money”. The congress delegated this to the Fed. So, like Powell recently observed, “Our independence is a question of law”.
Third, even if Powell's confidence is raped by the Supreme Court, he knows that investors – and most American politicians – back from the independence of the Central Bank. In addition, recent events suggest that Scott Bessent, secretary of the Treasury, does not want bond yields soaring.
This does not guarantee that Trump will not transform his Kabuki into action – he is Mercurial, after all. But that means that Powell's challenge will be supported by the Fed board of directors, which means that Trump is not just a man.
Expect that it works and works – especially if stagflation strikes, which, of course, would make bond markets even more danger.
