Today, my friends and I discussed a topic: whether Powell chose not to cut interest rates due to party disputes.

First, let's talk about the agreeing viewpoint:

The reason is simple. Although the Federal Reserve claims to be independent, it has never been truly "independent in a vacuum," especially in this era of political polarization. Powell is a Republican, but his reappointment was completed under Biden, and this time it is evident that his policy path aligns very closely with the Democratic Party.

On Trump's side, there is a significant fiscal expansion and increased tariffs. According to normal logic, in this situation, monetary policy should cooperate with interest rate cuts; otherwise, the economy will quickly suffer. However, Powell refused to cooperate, citing the inflation risks brought by tariffs. This directly resulted in a combination of fiscal expansion and monetary tightening, with the market and economy relying on leverage to push forward, while all the pressure was shifted to the capital market and the private sector, and the Federal Reserve stood by, refusing to provide liquidity.

Naturally, the Republicans believe this is a deliberate suppression, as without liquidity, their fiscal stimulus cannot be effective. The Democrats are also pleased, as Trump wants to impose tariffs, cut welfare, and expand the military, so they let him bear the inflation burden himself.

Powell is not foolish; he knows that if he cuts interest rates before the tariffs take effect, the independence of the Federal Reserve will be completely lost, turning it into a cash machine for the White House. Therefore, his current strategy is very clear: he doesn't say "I don't want to help you, Trump," but uses tariff-induced inflation as a shield to delay any rate cuts.

Is this party conflict? It is, but it is not just party conflict; it is more about the instinct of the system to protect itself. From the Republican perspective, this is financial suppression; from the Democratic perspective, this is a systemic counterbalance to extreme fiscal policies.

Now, let's discuss the differing viewpoint:

If we interpret Powell purely from the perspective of inflation, his logic makes complete sense. The inflation structure currently facing the U.S. is different from traditional demand-side inflation; the biggest risk this time is imported inflation, and the core source of imported inflation is Trump's tariffs.

Powell has repeatedly stated that if it weren't for Trump's tariff policy, the Federal Reserve would have already started cutting interest rates, which aligns with the market's expectations for rate cuts last year.

If the Federal Reserve chooses to cut rates before the tariffs are officially implemented, it would mean that monetary policy is cooperating with trade protectionism, with fiscal tax increases and monetary easing, which would double the inflation pressure. From the Federal Reserve's perspective, how could it be willing to take the blame for that? After all, managing inflation and economic stability are the responsibilities of the Federal Reserve. Therefore, cutting rates offers no benefits to the Federal Reserve, while not cutting rates allows it to avoid taking the blame.

Thus, Powell's current stance is clear: before the tariffs take effect, don't expect me to act. Otherwise, if he rashly cuts rates, U.S. Treasury yields might indeed drop initially, but commodity prices would be driven up directly, and inflation expectations would stubbornly remain high, forcing the Federal Reserve to passively raise rates again later, which would truly lead to a collapse. One can refer to the era of Paul Volcker.

So, from the pure logic of inflation management, Powell's current resistance to cutting rates is indeed reasonable. The fundamental issue lies not in monetary policy but in the fiscal side. The implementation of tariffs itself disrupts the supply chain, raising input costs, and the Federal Reserve's toolbox cannot solve such structural problems.

In summary, different perspectives lead to completely different interpretations of Powell. From the standpoint of the White House and the Republicans, he is obstructing economic stimulus and even carries a political suppression connotation; but from the perspective of inflation management, Powell is simply choosing to serve inflation and refusing to take the blame for short-term political gains.

In the long run, this choice may not be wrong; in fact, in a certain sense, it serves the Republican Party, because if liquidity is rashly increased in conjunction with tariffs, inflation could spiral out of control, ultimately harming the entire economy.

However, the reality is that the Federal Reserve's insistence will significantly increase the probability of the U.S. entering a recession, and the cost to the capital markets will also be substantial. So this is essentially a choice: either cooperate with Trump and the Republicans for short-term market relief, or stabilize inflation in the long term, but it is impossible to achieve both.

Currently, Powell has chosen the latter.

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