Behind Trump's pressure to cut interest rates: The Federal Reserve's independence is facing an unprecedented political test

Trump once again pressures the Federal Reserve. After the December inflation data was released, the U.S. President publicly praised the figures and directly suggested that Fed Chair Powell should consider cutting interest rates. This is not an isolated incident but part of an escalating political confrontation—according to the latest reports, the Department of Justice has even launched a criminal investigation into Powell. In this silent power struggle, the independence of the Federal Reserve is facing an unprecedented test.

Trump’s “Multiple Approaches” to Pressure for Rate Cuts

From Economic Data to Direct Pressure

Trump’s praise for the December inflation data may seem mild, but it is actually a clever political expression. When he says “inflation data looks good” while suggesting a rate cut, he is effectively sending a signal to the market and the Fed: inflation is sufficiently under control, and there is no reason for the central bank to maintain high interest rates. This way of framing is more damaging than direct criticism because it uses “facts” to support the “conclusion.”

According to the latest news, the conflict between Trump and Powell is far beyond words. The Department of Justice’s criminal investigation into Powell—ostensibly related to the renovation of the Federal Reserve headquarters—has been stated by Powell himself to be connected to his refusal to meet Trump’s demand for a rate cut. The symbolic significance of this investigation far exceeds its practical impact; it sends a clear signal of pressure to Powell.

Powell’s “Tough” Response

Powell’s stance remains firm. He publicly states that the Federal Reserve makes policy based on economic data and real-world conditions, not on the President’s preferences. He also explicitly states that he will not succumb to political pressure or intimidation. This position reflects the Fed’s commitment to independence but also suggests that this confrontation could escalate further.

Broader Political Context

Trump’s calls for rate cuts are not unfounded. According to the latest reports, the Trump administration is pushing for several policy changes:

• Trade Negotiations: The U.S. and India are resolving disagreements, including long-delayed trade agreements, which could impact economic growth expectations
• Geopolitical Tensions: Frictions in U.S.-Europe relations (Greenland issue), escalation in the Middle East (Iran), all increasing market risks
• Cryptocurrency Policy: Cardano founder Hoskinson criticized the White House’s crypto affairs chief, calling for the advancement of crypto market structure legislation

In this context, Trump’s push for rate cuts is not only an economic consideration but also part of a broader policy framework. He hopes to stimulate economic growth and support asset prices through rate cuts, thereby bolstering his governance achievements.

Chain Reaction in the Markets

Impact on Different Assets

Changes in expectations for Fed rate cuts will have multiple effects:

According to the latest reports, BiyaPay analysts note that the market has shifted from a single macro factor to a “geopolitical + policy” layered driver. This means investors need to monitor multiple dimensions, including Fed policy, geopolitical conflicts, and trade negotiations.

Safe-Haven Capital Flows

Rising geopolitical risks are changing investor asset allocations. The latest news indicates that safe-haven funds are flowing back into precious metals markets. This reflects concerns over uncertainty—uncertainty about whether the Fed will yield to political pressure and whether geopolitical tensions will worsen further.

Key Points to Watch Moving Forward

The Fed’s Attitude Shift

Powell’s current stance is “not yielding,” but is everyone in the Federal Reserve Committee so steadfast? If Trump’s pressure continues to intensify, could there be disagreements within the Fed? This will directly influence future policy directions.

The Specifics of December CPI Data

While Trump praised the data, what exactly do the inflation indicators show? If the data indeed indicates a continued decline in inflation, the Fed might have more room to cut rates. This will be a key factor in determining whether the Fed will actually cut rates in the near future.

Developments in the Department of Justice Investigation

Is this investigation symbolic pressure or a real threat? If the investigation heats up, political pressure on Powell will increase sharply. This could ultimately undermine the Fed’s independent decision-making.

Summary

Trump’s pressure on the Federal Reserve has risen from verbal to judicial levels, which is rare in U.S. history. Trump aims to support the economy and asset prices through rate cuts, while Powell is making a final stand to defend the Fed’s independence. The outcome of this confrontation will not only influence the Fed’s next policy move but could also reshape the power structure of U.S. financial decision-making.

Investors should closely monitor three areas: whether there will be a shift in the Fed’s stance, whether CPI data truly supports rate cuts, and whether the Department of Justice investigation becomes a political bargaining chip. Against the backdrop of rising geopolitical risks and policy uncertainties, market volatility is expected to remain high.