Trump is anxious and is considering announcing a 'shadow Fed chair' this summer.

Written by: Long Yue, Wall Street Insight

Faced with the Federal Reserve's reluctance to lower interest rates, Trump couldn't sit still. He is once again considering breaking norms and preparing to announce the next Federal Reserve chair candidate in advance, attempting to use the "shadow chair" strategy to pressure the current chair Powell to expedite the interest rate reduction process.

According to the Wall Street Journal, Trump is considering announcing a successor to Powell as Fed Chair as early as this summer or fall, far ahead of the traditional 3-4 month transition period. Sources reveal that Trump is increasingly dissatisfied with the Fed's cautious stance on interest rate cuts and hopes that by announcing a successor early, the "shadow chair" can start to influence market expectations and the direction of monetary policy before Powell's term ends.

Sources reveal that in recent weeks, Trump has been considering selecting and announcing Powell's successor before September or October. His anger towards Powell may lead him to announce the successor's choice earlier this summer. The new Federal Reserve Chair will not take office until May next year.

Trump hinted at a possible acceleration of the process during the NATO summit press conference:

I know who I will choose among 3-4 people. Fortunately, he will soon be leaving his position because I think he is terrible.

However, the Federal Reserve's policy is set by a committee of 12 decision-makers, and Trump cannot appoint a majority of the members unless the current governors leave office early. This means the new chair must have the ability to persuade a broader committee. There are also risks in announcing early. Candidates may find themselves in the awkward position of publicly criticizing future colleagues, or they may lose credibility if the market views them as a "yes-man."

Candidates emerge

According to a previous article by Wall Street Journal, media reports indicate that the main candidates include former Federal Reserve Governor Warsh, Chairman of the National Economic Council Hassett, current Federal Reserve Governor Waller, and U.S. Secretary of the Treasury Becerra.

One of the officials nominated by Trump during his first term, Federal Reserve Governor Waller, stated in an interview with CNBC last Friday that he might support a rate cut next month due to concerns about an excessively weak labor market.

In the past two months, one of the popular candidates for the next chairman of the Federal Reserve, former Fed governor Walsh, has given several speeches in which he stated that the Fed itself must take responsibility for these attacks. "I see the media excitedly reporting how politicians are relentless against the Fed, and I just want to say: Grow up! Be tougher."

Powell responds

Facing political pressure, Powell reaffirmed the independence of the Federal Reserve at Wednesday's Senate hearing: "If we make a mistake here, people will bear the consequences for a long time." He stated that interest rate cuts this year are possible, but "we will take a cautious approach."

Powell's term as chairman of the Federal Reserve ends in May next year, but his term as a member of the board doesn't expire until 2028, which means he can choose to continue serving as a board member for another year and a half after stepping down as chairman. Powell stated during a congressional hearing on Tuesday that he is focused solely on "keeping the economy strong and inflation under control during the remainder of his time at the Federal Reserve."