President Trump continues to criticize the Fed, and particularly Chair Powell, for not cutting interest rates.

President Trump continues to criticize the Fed, and particularly Chair Powell, for not cutting interest rates. Many analysts can expect this criticism to rise another notch as the Fed keeps rates unchanged. Does such criticism work? It seems not judging by the Fed’s recent intransigence nor Powell’s refusal to bend to similar pressure during Trump’s first term. But are things different this time?

The good news for those hoping that the Fed resists political pressure is not just that the Fed seemingly ignored calls for lower rates from Trump during his first term, through late 2018 and the first half of 2019. It is that Powell was appointed as Chair by Trump himself in February 2018.

In other words, anyone thinking back then that Trump had nominated a ‘yes man’ to see through rapid rate cuts was wrong. It would seem, therefore, that there’s no guarantee that Powell’s replacement (his term ends in May 2026) will be any more amenable to political pressure.

Another point is that it is hard to find any evidence that the political pressure Trump put on the Fed to ease policy in late 2018 and the first half of 2019 undermined the bank’s independence in any way and cost the Fed in terms of higher inflation expectations. The inflation swaps in the US did not rise during the period that Trump pressured the Fed; in fact, they fell. There are also other asset prices, or implied prices that talk to the idea that Trump never undermined the Fed. The term premium, for instance declined through this period, although we don’t doubt that issues around Fed independence are only one influence here. The US dollar also rose through the bulk of the period that Trump was attacking the Fed.

On the surface, then, it seems as if Trump won’t do any damage to the Fed or to US financial assets if he keeps up his attacks. However, there are some reasons for caution. First of all, political pressure could be much more intense this time around because the economy could be staring down the barrel of a recession after the fall in Q1 GDP, and with the full impact of tariffs to come. The designation of a recession is down to the independent Business Cycle Dating Committee of the National Bureau of Economic Research (NBER). This is a group of academics, and we already know that President Trump has put a lot of pressure on university funding; something that could be used as leverage when it comes to the designation of a recession.

However, Steven Barrow, Head of Standard Bank G10 Strategy, said even if the dreaded ‘R’ word is avoided, Trump seems likely to up the ante on the Fed. Of course, Trump himself appointed Powell in early 2018. He gets another chance in a year’s time. It won’t be Powell. It could potentially be somebody far more controversial from outside of the Fed, given that Trump found that ‘conventional’ pick Powell (who was already a Governor on the Federal Reserve) would not play ball when it came to lowering policy rates quickly in 2018/19. There has been talk of a ‘shadow’ FOMC, staffed with those more amenable to the easier policy Trump wants.

“That seems unlikely in our view, but scouting a new Fed Chair well ahead of Powell’s May 2026 departure could create all sorts of speculation about future policy and political bias. And one final thing to bear in mind is that the FX market has already turned very bearish on the US dollar judging by the post-inauguration fall in the greenback. As a result, US dollar bears might be lining up to find new reasons to sell (unlike 2018/19 when the US dollar was rising) and Trump could hand them another one by the way he provokes Powell and handles the appointment of his successor”, said Steven Barrow.