Does Trump want a Shadow Chair or an Apprentice?
“US President Donald Trump has made no secret of his disdain for Fed Chair Jerome Powell, whom he has repeatedly criticized for not cutting interest rates. But his plan to name Powell’s successor ten months early risks discrediting his own nominee, undermining confidence in the Fed, and destabilizing the economy.”
The Shadow Chair, in order to avoid having their nomination withdrawn, will presumably have to advocate aggressive rate cuts and explain them. This will serve to paint them into a corner once they actually formally move into the position — assuming they show enough fealty and general MAGA enthusiasm so that Trump does not say “You’re fired” and withdraw the nomination.
Powell has countered by refusing to commit to stepping down from the board. If he stayed on the board, it would limit Trump’s maneuvering room to appoint loyalists (there would then be only one upcoming appointment in the next year).
If Powell stays, it also leaves open the possibility that he will become a de facto shadow chair from the inside, especially if, during the apprenticeship, Trump’s appointee loses credibility with the rest of the Board. Interesting chess game.
The big question is how long rates respond to Trump’s moves. Short term the Trump gambit might work to bring long-rates down. Medium term, they are more likely to move up, both due to concerns over fiscal dominance and inflation, and given the long string of large deficits built into the One Big Beautiful Bill.