Trump Hopes for Powell to Cut Rates

Summary

President Trump has intensified his demands for the Federal Reserve to implement significant interest rate cuts, citing low inflation and the need to stimulate economic growth and ease pressure from national debt.[ref:1][ref:2][ref:32] He has publicly criticized Fed Chair Powell, labeling him ‘incompetent’ or ‘corrupt’ and has initiated a criminal investigation, threatening the Fed’s independence.[ref:6][ref:16][ref:34] While some Fed officials see merit in rate cuts due to deregulation, others remain concerned about inflation.[ref:17][ref:18] The pressure has introduced significant uncertainty, with some bond managers warning that eroding the Fed’s credibility could perversely lead to higher, not lower, long-term interest rates.[ref:11][ref:31]

Impact Analysis

This is less about monetary policy and more about a hostile takeover of the Fed. Trump isn’t just nudging Powell; he’s publicly calling him ‘incompetent,’ launching investigations, and demanding rates be slashed to 1% to finance government debt.[ref:6][ref:32][ref:36] The market seems to be taking the ‘rate cuts are good’ bait, but the real story is the erosion of Fed credibility. Bond managers are already warning this political interference could backfire, forcing a risk premium into Treasuries and pushing long-term yields higher, not lower.[ref:11][ref:31] We’ve already seen yields jump when a more dovish Fed chair candidate’s odds fell.[ref:10] The bottom line is the ‘risk-free’ rate is becoming riskier. This whole situation creates a structural headwind for long-duration assets. I think the play here is to be short US Treasuries; the term premium has to widen to account for this political chaos.