Trump's change of stance cannot hide his ambition for policy intervention? Morgan Stanley warns: The crisis of Federal Reserve independence may trigger inflation expectations

According to the Zhitong Finance APP, recently, rumors about "Trump wanting to fire Powell" have been rampant, leading to a "triple kill" in U.S. stocks, bonds, and currencies. However, on April 22 local time, Trump suddenly changed his statement, saying he had no intention of firing Powell. He accused the related claims of being media hype, stating, "I have no intention of firing him; I hope to see him more proactive on interest rate cuts," but Trump again pointed out that now is the "perfect time" for rate cuts. Threat to the Independence of the Federal Reserve Despite Trump's personal clarification, the market remains concerned about the challenges facing the independence of the Federal Reserve. JPMorgan Chase's latest research report points out that the independence of the Federal Reserve is facing unprecedented threats, which could have profound implications for inflation and interest rate prospects in the U.S. It is understood that the Federal Reserve's interest rate policy is set by the Federal Open Market Committee (FOMC). The FOMC consists of 12 members, including 7 members of the Federal Reserve Board, the President of the New York Federal Reserve, and 4 rotating members from the 11 regional Federal Reserve Bank presidents. Among them, the 7 board members are nominated by the president and confirmed by the Senate, serving a term of 14 years; the chair and vice chair are nominated by the president from among the board members, serving a term of 4 years and can be reappointed. The regional Federal Reserve presidents are selected by their respective Federal Reserve boards and require participation and consent from the Washington Federal Reserve Board. Under normal circumstances, the president mainly influences Federal Reserve policy through personnel appointments, but due to the long terms of board members, the president's influence on the composition of the board (or FOMC) during their term is limited. Additionally, the president can exert influence through meetings with the Federal Reserve chair, public comments on monetary policy, etc., but historically, these methods have had little actual impact on Federal Reserve decision-making. However, the U.S. president has recently publicly criticized Federal Reserve Chair Powell on social media and hinted at the possibility of removing him from office. Although historically the position of Federal Reserve chair is protected by law (requiring "just cause" (i.e., misconduct or dereliction of duty, not policy disagreements) for removal), the current administration is challenging this legal precedent. The Supreme Court is set to hear a case involving the dismissal of members of independent agencies, the National Labor Relations Board (NLRB) and the Merit Systems Protection Board (MSPB), which could directly affect the job security of Federal Reserve officials. JPMorgan Chase stated that if the Supreme Court supports the government, it may replace the board members it wishes to replace, potentially making all FOMC participants supporters of the government; if the Supreme Court supports the government in the aforementioned case but views the Federal Reserve as a special case, this could be beneficial for the Federal Reserve board members; if the Supreme Court rejects the government's appeal, it could preserve Powell's position on the board. However, even so, the president may still attempt to demote Powell from leadership positions such as chair or vice chair, as the Federal Reserve Act does not explicitly provide protection for leadership positions "for just cause." Potential Economic Impact Economists generally believe that monetary policy should be independent of the political cycle. The short-term nature of election cycles may tempt politically oriented monetary policymakers to stimulate the economy at inappropriate times, and political interference has previously led to poor monetary policy in the United States in the late 1960s and early 1970s, triggering inflation. JPMorgan Chase emphasizes that if the independence of the Federal Reserve is compromised, it will pose greater risks to the inflation outlook already affected by tariffs and inflation expectations. Market participants may demand higher inflation compensation, which would in turn push up long-term interest rates, putting pressure on the outlook for economic activity and fiscal conditions