Trump and Powell, an unavoidable battle

The conflict between U.S. President Trump and Federal Reserve Chairman Powell has escalated to unprecedented levels, with both heading towards an almost unavoidable confrontation. On the 16th local time, Powell made remarks in a public speech that the market referred to as a hawkish "triple play": placing greater emphasis on inflation (and its expectations) in the short term; no Fed Put; and the Fed will continue to maintain its independence. This seemed to further infuriate Trump, leading to an incident on the 17th where he specifically called out Powell three times, not only demanding interest rate cuts but also stating that Powell should have been fired long ago. According to The Wall Street Journal, Trump stated on social media that Powell's term should end "as soon as possible," and told reporters: "If I want him out, he will be gone very quickly, believe me." Such threatening remarks signify that the conflict between the two has escalated to unprecedented levels, with the core of their conflict rooted in a fundamental contradiction: Trump realizes that his tariff policy may bring short-term economic pain, and is therefore seeking the Fed to mitigate this impact through interest rate cuts; while Powell is concerned that cutting rates too early may exacerbate the inflation problem, which has already exceeded the 2% target, especially as tariffs may further drive up prices. Former House Financial Services Committee Chairman Patrick McHenry stated, "This is the most complex situation any Fed chairman has faced." Unavoidable Deep-rooted Contradiction: Tariffs and Inflation Dilemma Trump's tariff policy in his second term is more aggressive and extensive than in his first term, significantly altering the policy environment faced by the Fed. This trade war is causing a "supply shock" to the U.S. economy, not only limiting economic production capacity but also pushing prices higher. In this context, Powell faces a no-win dilemma: If he cuts rates to stimulate demand, it may further exacerbate inflation; if he maintains high rates, it may accelerate economic recession. Additionally, Powell faces a more challenging issue, as the tariff war is undermining the traditional "automatic stabilizer" function of the dollar. Minsheng Securities pointed out in a research report that in the past, global risk events typically led to a strengthening of the dollar, thereby limiting inflation and its expectations—this was the case during the trade frictions of 2018 to 2019. Today, this fundamental attribute of the dollar is shaking—global tariffs are weakening the dollar system and causing capital outflows, making the dollar's risk attributes stronger and losing its stabilizing function. A depreciating dollar could amplify imported inflation, making Powell's policy choices even more difficult. In summary, the tricky situation faced by the Federal Reserve is: any interest rate action taken by the Federal Reserve may exacerbate one problem while addressing another before it is clear whether inflation or unemployment is the bigger issue. The Ultimate Struggle for Power and Independence Given the current situation is more severe, the Trump administration is attempting to challenge legal and institutional precedents, including the independence guarantees of the Federal Reserve. As previously mentioned by Wall Street Insight, the Trump administration is targeting independent agencies, urging the Supreme Court to dismiss relevant officials. Analysts believe this move could pave a legal path for Trump to remove Powell, challenging the long-standing independence norms of the Federal Reserve. Jon Faust, who served as a senior advisor to Powell from 2018 to last year, stated, "Trump seems to want all important sources of power to yield to his will: the courts, elite universities, foreigners—whether friends or foes. I think the Federal Reserve will ultimately find it hard to escape this fate." He believes the risk to the authority of the Federal Reserve is disturbingly high. In the face of challenges, Powell chose a tough response. In a speech on the 16th, he even subtly criticized the White House regarding fiscal issues, stating that addressing the unsustainable government debt problem requires focusing on mandatory spending rather than relying on monetary policy. Regarding independence, Powell has also made his position clear: "Our independence is a matter of law." Sources familiar with the situation revealed that if Trump indeed takes action to remove Powell, the latter may personally fund a legal challenge, and this battle may ultimately require a Supreme Court ruling. This series of statements seems to indicate that Powell is determined to emulate legendary Chairman Paul Volcker in the final moments of his tenure as Chairman of the Federal Reserve, defending the central bank's independence and controlling inflation at all costs. The Federal Reserve's position has also received support from some members of Congress. Republican Congressman Frank Lucas stated that the Federal Reserve is composed of "a group of very strong, extremely intelligent, and determined individuals," and the monetary policy subcommittee he leads may ultimately consider measures to strengthen the independence of the Federal Reserve. "That kind of independence is very important; the debate over who should control the Federal Reserve was settled when Congress created this institution."