Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Donald Trump has stated his desire to replace Jay Powell as the chair of the Federal Reserve, alleging that Powell is being “political” and predicting that he would lower interest rates to “aid the Democrats” this year. Trump’s critical remarks about Powell during his presidency from 2017 to 2021 indicate a significant strain between the Fed and the White House, which could intensify next year if he emerges victorious over Joe Biden in November. Trump told Fox Business Network that he believes Powell is aiming to reduce interest rates in order to potentially influence the election, stating, “It looks to me like he’s trying to lower interest rates for the sake of maybe getting people elected, I don’t know.” When asked if he would consider offering Powell another four-year term in 2026, Trump, the frontrunner for the Republican presidential nomination, responded, “I wouldn’t do that”. Despite nominating Powell as Fed chair in 2018, Trump later turned against the US central bank, accusing it of maintaining excessively high interest rates during the time of the trade wars with China and Europe, which challenged the bank’s independence. Powell, who was reappointed to a second term by Biden, dismissed a question about whether he would desire a third term as Fed chair, stating, “I don’t have a stance on that. It’s not something I’m focused on . . . This year is going to be a highly consequential year for the Fed and for monetary policy, and we’re all of us very buckled down, focused on doing our jobs.” The Fed has increased the benchmark interest rate from near zero to a target range between 5.25 and 5.5 per cent over the past two years to combat inflation, and has indicated a potential decrease in rates later in 2024. Trump also criticized Powell for overlooking the increase in inflation, and warned of significant spikes in oil prices due to the Middle East conflict. Eswar Prasad, a professor at Cornell University, described Trump’s remarks as “a symbol of the dire and extremely worrying threats made by Republican candidates to the independence of the Fed”. While financial markets are closely monitoring the US presidential race, investors have been cautious about formulating strategies early in the contest, choosing to focus more on Powell’s policies than his prospects of retaining his position after the election. Trump has been vocal about taking credit for the recent strong performance of stock markets, and has refrained from disclosing who he might designate as Powell’s successor, although possible candidates include Kevin Warsh, a former Fed governor, and Judy Shelton. Additional reporting by Claire Jones
