Donald Trump: How the US President is cornering the Fed

If these were normal times, one could be fairly certain what would happen next Wednesday . Jerome Powell (72) would step up to the microphone and announce that the U.S. Federal Reserve would leave interest rates unchanged. And everyone would nod and say: Okay, that's a sensible, appropriate decision.

Ultimately, the Fed is supposed to keep inflation under control on the one hand, and ensure high employment and the lowest possible long-term interest rates on the other. This is its statutory mandate. Currently, the inflation rate is still above the target of 2 percent; public inflation expectations have recently climbed significantly higher again, indicating that there is some inflationary pressure in the system again.

The ongoing price dynamics actually preclude any serious consideration of interest rate cuts. However, given the sluggish economy, a rate hike would also be inappropriate. Given the current situation, there's only one sensible tactic at the moment: stay the course and wait. In normal times, Fed Chairman Powell would answer reporters' questions with a curt tone at Wednesday's press conference and then disappear from public view for weeks.

Unfortunately, times are anything but normal . It's Trump time. And the US president simply won't let the central bankers do their jobs in peace. The political drama must never end.

At one point, Trump (78) calls the Fed chairman a "loser" and threatens to fire him. Then he backtracks and declares he has no intention of ousting the powerful central bank chairman. But then he can't control himself and, at the next opportunity, announces how dissatisfied he is with Powell, the interest rate level, and monetary policy in general, about which he, by his own admission, knows more than the entire Fed's expertise.

In a recent interview with ABC, he said the Fed "wanna play cute." This could be translated as: ...playing dumb. Or: acting bitchy. Either way, the phrase is completely inappropriate.

The situation is extremely uncomfortable for Powell and his colleagues. First, they have to make a decision at the Monetary Policy Committee meeting next week that is the right one, given the current data.

Second, the central bank should remain independent as an institution. Subordinating itself to the government would not only be detrimental to the monetary and financial stability of the United States . It would also represent a dramatic demotion after more than a century of Fed history. A relegation to the emerging market league, where some analysts already place the United States. Such states are typically characterized by weak institutions, so abrupt and corrupt policy changes are always to be expected.

If the Fed were to once again painfully miss its price stability target—as it did in 2021 and 2022, when the US central bankers and their counterparts in Europe allowed post-COVID inflation to run out of control—its popular support would dwindle. Trump would then have strong arguments on his side to bring the central bankers more firmly under his control. Rapid interest rate cuts, as Trump is calling for, are out of the question from this perspective. They would fuel inflation and thus provide Trump with a pretext for a hostile takeover of the Fed.

However, if the Fed resolutely combats inflation (currently 2.3 percent), keeps interest rates high (currently between 4.25 and 4.5 percent), or even raises them further, Trump could feel personally attacked and use this as an opportunity to bring the Fed under his control—for example, under the pretext that it is supposedly thwarting the economic boom he promised his "Make America Great Again" congregation. This would serve a widespread conspiracy-populist narrative: The "Deep State" (embodied here by Powell and colleagues) is working against the interests of its own people (embodied here by its leader, Donald Trump ).

But it gets even more complicated: Trump's own economic policy is fueling inflation, choking the economy, and thus putting Powell's Fed in a tight spot.

Trump's tariff conflict with the rest of the world, as well as the geopolitical uncertainty he is fueling, are all driving up prices and disrupting economic development in the United States. Consequently, Americans are now expecting inflation rates of 6.5 percent over the next 12 months—the highest since 1981—while simultaneously consumer sentiment is collapsing, as the University of Michigan recently determined . While inflation expectations on the financial markets are not quite as high, they are also well above the 2 percent target due to the price-boosting tariff policy.

America's statisticians recently released new figures on economic output in the first quarter of 2025. According to these figures, the US gross domestic product shrank slightly, by 0.3 percent. This is partly due to a statistical effect: Fearing Trump's high tariffs, companies quickly imported large quantities of goods to stockpile before Trump unleashed the tariff hammer on "Liberation Day" on April 2. Imports are recorded as negative values ​​in the national accounts. In subsequent quarters, when these goods are consumed, this effect is likely to be offset.

Nevertheless, such details are lost in public perception. Accordingly, there's now a negative connotation – and that's a problem for Trump, both politically and personally. So he's clearly trying to blame Powell and Co., along the lines of: If you had lowered interest rates like I told you, things wouldn't have gotten this far.

But seriously, could Trump disempower the Fed if he wanted to?

Already during his first term, Trump repeatedly attacked the Fed. Nevertheless, he generally exercised caution. He nominated Jerome Powell, a rather conservative mainstream central banker with a legal background, as chairman. Powell, whom his predecessor Barack Obama (62) had once appointed to the Fed's highest body, was a rather conservative, mainstream central banker with a legal background. This by no means prevented him from repeatedly criticizing him loudly. But ultimately, he let him continue.

So far, the Fed has been largely protected from political influence. The expectation of long-term monetary stability—and thus the global importance of the dollar and the stability of the American financial markets—depends on the central bank's credibility.

If Powell fails, then America's financial capitalism might fail. So far, this connection has protected the Fed. But who knows? After all, Trump hasn't shied away from a crazy, self-destructive tariff attack on the rest of the world.

In any case, the Fed is not particularly effectively protected by the law. Its prominent role as an autonomous authority, enjoying a special status alongside the rest of the executive branch, is based primarily on tradition – on partly unwritten rules that governments have adhered to for many decades.

An analysis by the Washington-based think tank Brookings concludes that the Federal Reserve Act leaves much open. The independence of the monetary policy body is ultimately based on convention.

Should a president decide to break with this tradition, the Supreme Court would have to decide whether he is permitted to do so. Its majority consists of Trump confidants who last year granted the president quasi-dictatorial universal immunity for actions in office. Measured against this, replacing a Federal Reserve chairman, especially if his conduct in office is elevated to a national emergency, would not pose an insurmountable legal problem.

Monday

Berlin – "Respect" retirement – ​​Chancellor Olaf Scholz will be leaving office with a grand tattoo. Among the songs he requested for the occasion is the soul classic "Respect."

Reporting season I – business figures from Biontech, Audi , Ford , Mattel.

AGM Season I – Annual General Meetings of Eli Lilly, Uber.

Tuesday

Berlin – Here we go – CDU leader Friedrich Merz is expected to be elected Chancellor. Following this: the swearing-in of the Chancellor and the Cabinet by Federal President Steinmeier .

Reporting season II – business figures from FMC, MTU, Continental , Hugo Boss , Elmos, Vestas Zalando, Coverstro, Evotec, Teamviewer, AXA, Intesa Sanpaolo, Philips, Ferrari, Bristol Myers Squibb, AMD, Coty.

AGM Season II – Annual General Meetings of Lufthansa , Nordex, ArcelorMittal, Air Liquide, Intel , GE.

Wednesday

Washington – Hot seat – Under massive political pressure, the US Federal Reserve (Fed) is deciding on its future course. Financial markets are expecting three interest rate cuts this year. But investors have proven chronically poor at factoring the changing economic climate in the US into their forecasts.

Frankfurt – Forerunners – The mechanical engineering association VDMA publishes new figures on incoming orders in March and the first quarter as a whole.

AGM Season III – Annual General Meetings of Mercedes-Benz, Grenke, Kuehne & Nagel, Wacker Chemie, Vossloh, Aston Martin, Pepsico, Barclays, Philip Morris,

Reporting season III – business figures from BMW ,Siemens Healthineers , Fresenius , Hensoldt, Vonovia, Schaeffler, Qiagen, Würth, Endesa, Ahold Delhaize, Novo Nordisk , Telecom Italia, GlaxoSmithKline, Uber, Disney , Avis Budget.

Thursday

Wiesbaden – Shocking prospects – The Federal Statistical Office reports on German exports in the month of March, before the tariff crackdown.

Reporting season III – business figures from Henkel , Rheinmetall , Aurubis, Heidelberg Materials, Siemens Energy , Infineon, Puma , SGL Carbon, Gea, Stroer, Hella, Knorr-Bremse, Leonardo, AP Moller-Maersk, Banca Monte dei Paschi di Siena, Anheuser-Busch InBev, Zurich, Adecco, Conoco Philips, Warner Music, Alcoa.

AGM Season IV – Annual General Meetings of Allianz , EnBW, MTU, Talanx, Deutz, Jost, Philips, DocMorris, UPS, Ford.

Friday

Beijing – Sino-US conflict – First hard trade data from the new tariff war between the US and China: China's customs authorities present foreign trade figures for April. The new exorbitant tariff rates have been in effect since April 2.

Reporting season IV – business figures from Commerzbank , Bechtle.