Mr Too Late versus TACO
The last Fed meeting gave rise to a new skirmish between the US President – recently awarded the nickname of TACO (“Trump Always Chickens Out”) – and the Fed Chair – renamed “Mr Too Late” by Trump for his supposed inability to cut rates swiftly. The stand-off between the two most powerful men in the US is starting to look a little like a wrestling match.
On the one side of the ring, Donald Trump, on the attack, trying one showy hold after another. During an interview in the gardens of the White House on 18 June, he again called Jerome Powell an “idiot”, criticising the wait-and-see approach of the Fed and encouraging him to immediately cut rates by at least 1% and up to 2.5%, in order to lighten the interest burden on US debt. He even went as far as wondering aloud if he could apply for the job at the head of the Fed personally, as Powell’s mandate is due to end in May 2026.
On the other side of the ring, Jerome Powell is taking a defensive approach, avoiding comment on Trump’s posturing. A fierce protector of the independence of the institute over which he presides, he is focused on dodging the repeated assaults of his opponent. But his time is limited – his mandate is up in less than a year.
The prospect of the nomination of a new Chair of the Federal Reserve leaves room for speculation. US online betting sites already give an indication of the credible candidates. And Kevin Warsh – a former member of the Fed – is currently favourite. His name was already on the table in 2017, but Trump ultimately chose Jerome Powell. Reputed to be a hawk – i.e. one of the governors more in favour of restrictive policies – he left the Fed in protest against the extent of asset purchases.
The bond market is currently expecting a gradual, straight-line reduction in rates, with around four cuts of 25 basis points over a year. But there’s a strong chance that the change at the head of the institution will represent a break: firstly, in the independence of the Fed vis-à-vis the executive, and secondly on the trajectory of rates, which could – at least partially – follow directives from the White House. It remains to be seen how markets will react to such a situation. Will they be relieved if monetary policy becomes radically accommodative in summer 2026? Or will they shun US assets a little more, given the loss of the Fed’s independence?
By then, like every well-staged wrestling match, there may be many a spectacular reversal in the situation.