Source: Glonui.
Mortal enemies have reappeared.
As the 2024 US presidential election approaches, economists and market analysts have conducted in-depth analysis on the impact of Trump's possible return to the White House.
The general view is that Trump's policies, especially his tariff agenda and the eviction plan for undocumented workers, may reignite inflationary pressures, forcing the Federal Reserve to adopt a more stringent monetary policy.
Challenges of Trump policy to the Federal Reserve
Oxford Economics' model predicts that during Trump's second term, the peak of the inflation indicator monitored closely by the Federal Reserve, which does not include food and energy prices, may be 0.3 to 0.6 percentage points higher than expected under current policy.
The Democratic government led by Vice President Harris is expected to continue Biden's economic policies, with potential inflation increases ranging from 0.1 to 0.2 percentage points.
This suggests that compared to Trump, Harris may largely continue Biden's economic policies.
The market originally expected the Federal Reserve to cut interest rates in September, but Trump's policies may disrupt this plan.
Trump's economic plan is essentially inflationary, significantly increasing tariffs, expansionary fiscal policy, and large-scale expulsion of immigrants. All these factors combined will increase inflation and interest rates more than before.
Diane Swonk, chief economist at KPMG USA, says that Trump's increased tariffs and "dramatically" restricted foreign labor mean inflation is "making a comeback," which is likely to force the Federal Reserve to maintain interest rates at their current level for "longer periods of time."
The influence and boundaries of the US president
Although the president has the power to nominate candidates for Federal Reserve chairman, the ultimate decision to appoint rests with the Senate. The independence of the Federal Reserve is protected by the constitution, and the president cannot dismiss the Fed chairman solely because of policy disagreements.
If the president insists on dismissing the Fed chairman, an explicit court ruling may be required. The Fed chairman is protected by law during his tenure and can perform his duties independently of political pressure.
Trump's conflict with Powell during his presidency is well known, despite appointing Powell as Fed chairman. However, Trump recently stated that he would not try to oust Powell before his term expires in 2026.
Some analysts believe that if the Federal Reserve opposes the side effects of Trump's policy, Trump may try to reshape the Federal Reserve. By May 2026, Trump will have a more direct option, which is to nominate a more compliant Federal Reserve chairman.
The independence of the Federal Reserve is also reflected in the fact that the 12 regional reserves are independently registered, and their board members are elected by member banks in their respective regions, and then select the chairman of the regional reserve, which requires the approval of the board of directors.
This further enhances the independence of the Fed in formulating monetary policy. Even if the president can replace the chairman of the board of directors, it may not be possible to change the policy direction of the Federal Open Market Committee (FOMC).
In history, disagreements between Fed chairs and presidents were not uncommon.
Powell was elected Federal Reserve chairman during Trump's tenure, but the two had significant differences in monetary policy. Trump heavily criticized Powell's rate hike policy and discussed dismissing him. Although the president can exert some influence on the Federal Reserve through nominations and legislation, the decision-making process and policy formulation of the Federal Reserve still have a high degree of independence.
Editor/Lambor