As the global economy faces multiple uncertainties, with inflation cooling but remaining stubborn, and the U.S. government shutdown leading to the absence of key economic data, the direction of the Federal Reserve's monetary policy is under close scrutiny. However, this decision, which affects global financial markets, is overshadowed by unprecedented political intervention. U.S. President Donald Trump plans to announce his nominee for the next Federal Reserve chair months in advance, breaking tradition and putting the independence of monetary policy in the spotlight. This move not only casts a shadow over market expectations for interest rate cuts but also closely ties the future leadership of the Federal Reserve to intense political maneuvering.

I. Expectations for Rate Cuts and "Data Fog": The Federal Reserve's Difficult Choices

Currently, market expectations for a rate cut by the Federal Reserve are strong. The widely watched CME Group FedWatch Tool indicates that during the Federal Open Market Committee meeting on October 29, the probability of lowering the federal funds rate by a quarter percentage point exceeds 97%, which would bring the target range down to about 3.75% to 4.00%. This expectation is primarily driven by the consumer price index (CPI) in September coming in below expectations, indicating that inflation is cooling. Michael Feroli, Chief U.S. Economist at JPMorgan, noted, "Weak inflation provides an excuse for the Fed to ease policy." Recent comments from Fed Chair Jerome Powell about "meeting by meeting" rate cuts have also solidified investor expectations for at least one more cut this year.

However, the U.S. government shutdown has cast a layer of "data fog" over the Fed's decision-making. With major government statistical agencies closed, several key economic indicators, particularly those from the Bureau of Labor Statistics that the Fed uses to formulate monetary policy, have been suspended. This has left the Fed in a "data blind" predicament, making it difficult to accurately assess economic trends. Economists warn that if the government shutdown continues, the Fed's next decision will essentially be blind, complicating the timing and magnitude of any future rate cuts.

II. Trump's "Preemptive Moves": Breaking Tradition and Pressuring the Fed

As the Fed grapples with data shortages and difficult decisions, President Trump's political pressure has intervened in an unprecedented manner.

Ongoing Criticism and Calls for Rate Cuts: Since taking office in January, Trump has repeatedly criticized the Fed's interest rate decisions and has called for a three-percentage-point cut to boost the lagging U.S. housing market and reduce interest payments on national debt. Reports indicate he will push for more aggressive cuts to stimulate economic growth before 2026.

Early Announcement of Successor: Most notably, Trump plans to announce his nominee to succeed Fed Chair Powell months in advance. Powell's term ends in May next year, and Trump has indicated he may announce his choice by the end of the year. This break from tradition aims to guide market expectations regarding future interest rate paths and exert influence over the Fed's current decisions.

Potential Downsides: The unusually early nomination carries risks: Powell's successor may find themselves in a dilemma—publicly questioning the decisions of future colleagues or defending the Fed's current policies, potentially angering Trump. While interest rate decisions are led by the chair, they require consensus from the 12-member Federal Open Market Committee.

III. The Shortlist Emerges: Who Will Lead the Global Central Bank?

As Trump plans to announce his successor early, potential candidates for the new Fed chair are coming to light. Treasury Secretary Mnuchin plans to conduct a second round of interviews with current candidates next month, followed by submitting a more streamlined nomination list to the president for consideration.

Five Final Candidates:

• Christopher Waller: Current Fed Governor, initially nominated by Trump.
• Michelle Bowman: Current Fed Governor and Vice Chair for Bank Supervision, initially nominated by Trump.
• Kevin Hassett: Director of the White House Council of Economic Advisers, widely seen as a frontrunner and closely associated with Trump.
• Kevin Warsh: Former Fed Governor, also widely regarded as a frontrunner and closely associated with Trump.
• Rick Rieder: Senior executive at BlackRock, responsible for overseeing the company's large bond business.

Mnuchin's Potential Role: Trump has previously stated he is not considering Mnuchin for the position, but several individuals who have spoken with Mnuchin revealed that if Trump is dissatisfied with other candidates, Mnuchin could still become a potential contender for the role.

Influential Personnel Decisions: Many Fed watchers believe this will be a key factor in Trump's most influential personnel decision during the remainder of his term.

IV. Monetary Policy Under Political Intervention: Independence and Market Stability

Trump's early intervention has made the Fed's monetary policy decisions not just a matter of economic data but deeply entangled in political maneuvering.

Challenge to the Fed's Independence: This political pressure and early appointment will undoubtedly challenge the Fed's independence, exposing it to greater external interference when formulating monetary policy.

The Risk of "Data Blindness": The "data fog" caused by the government shutdown means the Fed may misjudge economic trends in the absence of key information, increasing the risk of policy missteps.

Impact on the Market: Despite optimistic policies, uncertainty remains. Stock indices remain stable, and U.S. Treasury yields have slightly declined due to expectations of further easing. However, analysts warn that if wage pressures resurface or tariffs begin to affect consumer prices later this year, ongoing easing policies could reignite inflation.

Appointment of New Governors: Former President Biden's appointee, Adriana Kugler, resigned from her position about six months early, unexpectedly creating a vacancy for the White House. The Senate confirmed Trump's economic adviser Stephen Miran for the position in September. The Fed chair nominated by Trump is likely to take over Miran's current Fed governor seat. Miran's term ends in January, but he can remain until a successor is confirmed by the Senate. This will allow the future Fed chair to participate in the interest rate decision meetings in March and April next year, paving the way for their official term starting in mid-May.

Conclusion:

President Trump's plan to announce the successor to the Fed chair early, along with the emergence of the shortlist, has pushed the independence of monetary policy and political maneuvering to unprecedented heights. Against the backdrop of cooling inflation and the "data fog" caused by the government shutdown, the Fed's path to rate cuts is fraught with uncertainty. This personnel appointment, driven by political forces, will not only profoundly impact the future direction of the Fed's monetary policy but also have far-reaching effects on global financial markets.

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Original article: “Trump Plans to Name Fed Chair Pick Early, Powell Successor Shortlist Exposed”

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