Trump hints at appointing a new Federal Reserve chairman: supports "substantial" interest rate cuts

President Trump announced during a national televised address on Wednesday night that the nominee for the next Federal Reserve Chairman will soon be revealed, and that this candidate will support a "substantial" decrease in interest rates. Trump stated, "I am about to announce our next Federal Reserve Chairman. This person supports a substantial reduction in interest rates, which will lead to further declines in mortgage repayments." The Fed lowered interest rates by 25 basis points last week, bringing the federal funds rate down to 3.5%-3.75%, and Fed Chairman Powell sent out a dovish signal at the press conference following the rate decision. However, Trump criticized the rate cut as "too small," stating that "America's rates should be the lowest in the world." Trump had previously claimed that U.S. rates should be "1%, perhaps even lower." Since taking office in January, Trump has repeatedly accused the Fed of being too slow to cut rates, publicly criticized Powell as "clueless" and "always too late," and threatened to dismiss Fed Chairman Powell. Meanwhile, Trump is seeking to strengthen his control over the Fed in various ways during his second term, in line with his vision of aggressive rate cuts - successfully appointing his senior advisor, Milan, as a Fed director, and attempting to dismiss Fed Governor Cook. The most critical step is selecting a candidate who supports his stance on rate cuts to succeed Powell, whose term as Fed chairman ends in May next year. When Trump announced the nominee for the next Fed Chairman at the end of last month, Kevin Hassett, Director of the White House National Economic Council and Trump's Chief Economic Advisor, was seen as the most likely candidate. However, recently, former Fed Governor Kevin Warsh and Fed Director Christopher Waller have come back into view for investors. Trump stated in an interview on December 12th that Warsh is the top candidate for the next Fed Chairman position, while Hassett is also excellent, but the final candidate has not been determined. In addition, Trump interviewed Waller on December 17th. Warsh was previously on Trump's list of candidates, but was not the most favored until after a meeting with Trump last Wednesday, his status significantly rose. Trump said that Warsh told him that borrowing costs should be lower, "he believes rates must be lower, and everyone else I've talked to agrees." Jamie Dimon, CEO of JPMorgan Chase, implied support for Warsh to become the next Fed Chairman. Waller is still considered a "dark horse" or even an obvious underdog candidate. On one hand, his relationship with Trump is not as close as Warsh and Hassett's. On the other hand, some of Trump's aides are not pleased with Waller's vote to support a one-off 50 basis point rate cut in September 2024 - a vote that took place before Trump re-entered the White House. To some of Trump's confidants, this stance is seen as "not loyal enough." However, Wall Street generally has a high opinion of Waller. He has provided the most logical and solid theoretical basis for rate cuts this year, and is seen as capable of driving consensus within the Fed in the face of internal disagreements. Some of Waller's viewpoints on rate cuts have been accepted by Powell. On the prediction platform Polymarket, Hassett has the highest probability of winning at 52%, while Warsh has a 25% chance, and Waller has a 13.2% chance. Furthermore, it is worth noting that Trump has reiterated his consistent stance that the Fed Chairman should consult with the President when formulating rate policies. Trump stated, "This is not usually done now, but it used to be the custom, and I think it should be. I am a smart voice, and should be listened to." However, market participants believe that if Trump chooses a "compliant" Fed Chairman and provides support for his aggressive stance on rate cuts, it will damage the Fed's proud independence. Nick Timiraos, a well-known journalist known as the "Fed's newswire," pointed out that Trump's series of actions since taking office pose a threat to the Fed's independence, unlike any previous president, and by 2026, Trump will have a greater opportunity to leave a personal stamp on the Fed. The independence of the Fed has long been seen as a key factor in maintaining macroeconomic stability. However, whenever political forces attempt to intervene in central bank policy, it often leads to uncontrollable inflation or a loss of market confidence. Former Fed Chairman Ben Bernanke has warned, "Political interference in monetary policy could lead to a harmful boom-and-bust cycle, ultimately resulting in economic instability and rising inflation." Nevertheless, even if the next Fed Chairman chosen by Trump may assist the President in pushing for rate cuts, the serious divisions within the Fed currently suggest that Trump may not get his way. Several regional Fed Presidents who do not have voting rights this year expressed opposition to rate cuts at last week's policy meeting, indicating that the new Chairman may face a greater challenge in building consensus than Powell. Regardless of who Trump chooses to succeed Powell, he may face challenges in controlling the Federal Open Market Committee (FOMC). Calvin Tse, Director of Strategy and Economics at BNP Paribas in Paris, bluntly stated, "Chairman Powell has been in office for a long time and enjoys high prestige within the Federal Open Market Committee. Even under his leadership, there are still three members who hold opposing views, so I find it hard to imagine any new Fed Chairman would be able to more easily obtain unanimous agreement from FOMC members."