There is method to President Donald Trump's madness regarding Fed Chair Jerome Powell. Trump has been hammering Powell almost daily recently because doing so is very effectively hammering the foreign-exchange value of the dollar (chart). Trump wants a weaker dollar to boost US exports and depress US imports. He has said that he favored a weaker dollar many times in the past, but now he has found a way to achieve that: by beating up on Powell.
Trump wants Powell to resign so that he can replace him with one of his loyalists, who will cut interest rates more quickly than Powell. The Fed chair frequently has said that he is in no rush to lower the federal funds rate.
Powell's term as Fed chair ends on May 15, 2026. He might then decide to serve out his term as Fed governor through January 31, 2028. If so, then Trump would have to chose one of the current Fed governors as the new Fed chair. In this case, he would most likely pick Fed Governor Christopher Waller, who Trump appointed and who has been publicly lobbying for the job by advocating lowering interest rates sooner rather than later.
US Treasury Secretary Scott Bessent has also been lobbying for the job for a while. He told Barron's last October, "You could do the earliest Fed nomination and create a shadow Fed chair . . . and based on the concept of forward guidance, no one is really going to care what Jerome Powell has to say any more." The story also quoted me: "Ed Yardeni, a longtime Fed watcher and the president of Yardeni Research, called it a 'terrible' idea, explaining that a shadow Fed chair would 'create a lot of noise in the market.'"
Again, Powell would have to resign as Fed governor to open up a position that Bessent could fill, permitting him to be appointed as Fed chair by the President. He would still have to be approved by the Senate, which shouldn't be an issue. A much bigger issue is that whoever replaces Powell as Fed chair will still have to convince the other 11 voting members on the Federal Open Market Committee to go along with his/her policy stance.
In any event, Powell today said that he wouldn't rule out a rate cut at the July 29-30 meeting of the FOMC. As always, the decision will depend on the data.
This morning, the price of an ounce of gold is up by more than $50 to $3,363 in response to the weakening dollar (chart). We are still targeting $4,000 by the end of this year.
