Former U.S. Treasury Secretary Summers pointed out that Trump's frequent attacks on Federal Reserve Chairman Powell for refusing to cut interest rates are actually setting up a "scapegoat" for a future economic recession, attempting to shift the blame to the Federal Reserve rather than his own policies.
Written by: Long Yue
Source: Wall Street Journal
When Trump again criticized Federal Reserve Chairman Powell for not cutting interest rates, former U.S. Treasury Secretary Summers saw through the intent of this "political performance"—to find a scapegoat for a potential economic recession.
On June 19, former Treasury Secretary Lawrence Summers stated on Bloomberg's "Wall Street Week" that although Trump continues to criticize Federal Reserve Chairman Powell for not cutting rates this year, he expects Trump to appoint a "mainstream candidate" to succeed Powell. Summers believes that Trump's criticism of the Federal Reserve is more about shifting responsibility in the event of a potential recession rather than genuinely trying to influence Fed policy.
The Political Calculus Behind Calls for Rate Cuts
Regarding Trump's repeated demands for the Federal Reserve to cut interest rates, Summers provided a sharper interpretation.
"He is creating a situation where, if we face a recession, he can blame it on factors outside of his government policies," Summers analyzed. This strategic criticism provides Trump with political cover when economic policies may face challenges.
This week, Trump again criticized Powell for maintaining the benchmark interest rate. Previous articles from Wall Street Journal mentioned that Trump reiterated his call for the Federal Reserve to cut rates by 2.5 percentage points. He frequently pointed out that "too late, Mr. Powell" has caused the U.S. to "lose hundreds of billions of dollars" by not cutting rates.
He even joked, "Can I appoint myself to the Federal Reserve? I would do a much better job than these people."
"Mainstream" Successor: Market Stability Considerations Over Political Impulses
Despite Trump's verbal onslaught, Summers remains optimistic about the next Federal Reserve Chair candidate. He believes Trump will not sacrifice market stability to cater to his political base.
Summers stated, "I would be quite surprised if he does not make a choice that fair observers from both parties would find reasonable."
Summers said, "In this regard, I am more confident than some." He attributes this confidence to the financial markets' quick response to relevant news.
Powell's term as chairman will expire in May 2026. Trump stated this month that the next Federal Reserve Chair candidate "will be announced soon." Previously, current Treasury Secretary Scott Bessent mentioned in April that the timeline for interviewing Powell's successor is "sometime in the fall." Bessent himself and former Federal Reserve Governor Kevin Warsh are both listed as potential candidates.
Tariff Policy as a Source of Supply Shock
Summers also paid special attention to the latest economic forecasts released by the Federal Reserve on Wednesday. He pointed out that despite a decrease in energy costs this year and the application of artificial intelligence indicating productivity improvements, the new Fed forecasts show negative rather than positive supply shocks.
"It is not common for the Federal Reserve to raise both inflation and unemployment rate expectations," Summers noted, "so you see the arrival of supply shocks. What is it? It's tariffs. We are imposing supply shocks on ourselves, leading to expectations of higher inflation and higher unemployment rates—making the Fed's job more difficult."
This analysis directly addresses the core contradiction of Trump's trade policy: on one hand, raising inflation expectations through tariffs, and on the other hand, demanding the Federal Reserve cut rates to stimulate the economy, effectively creating a dilemma for the Fed.
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