Analysis of Trump’s Potential Moves Regarding Federal Reserve

Investing.com – President-elect Donald Trump is unlikely to appoint a "shadow" Federal Reserve chief to undermine current Chair Jerome Powell, according to analysts at Piper Sandler.

Despite some media reports suggesting Trump’s advisers want him to name a successor to Powell, who is set to remain until 2026, analysts believe such a move could lead to economic complications.

The analysts remarked that if a successor were appointed, it might send mixed signals to bond markets, diverting attention from Powell's leadership. The ability of the White House to influence monetary policy through a parallel statement from a new appointee would be significant.

However, Powell has already dismissed claims that he could be dismissed, stating he won’t resign if asked to by the new administration, and he would likely legally challenge any attempt at his removal.

Trump has previously stated he has no plans to push out Powell, indicating he would allow him to fulfill his term. The dynamics are complex as Trump’s advisers are divided on the extent to which Trump should challenge the Fed's leadership.

Unlike his previous presidency, immediate changes at the Fed may be complicated for Trump, as there are no vacancies on its seven-member board. Presently, any shifts at the Fed need to navigate ongoing efforts to combat inflation without destabilizing the economy.

Recently, the Fed reduced rates by 25 basis points, with activities ongoing at a steady pace. However, future rate reduction timelines remain uncertain. There is speculation that Trump's potential policy changes, such as imposing tariffs on U.S. imports, could elevate inflation and affect future Fed decisions on interest rates.

Despite speculation of possible tensions between the Fed and the new administration, Piper Sandler analysts suggest Trump is likely to respect the Fed's independence, considering it the best route for maintaining low interest rates. Any increase in the federal deficit could influence bond sales and overall borrowing costs.

In conclusion, maintaining numerical inflation targets and central bank independence may serve as crucial strategies for the new administration to keep borrowing costs manageable amidst expected fiscal challenges.