How Trump is Causing Front-Running

Recently, Trump’s harsh criticism of Fed Chair Powell has led investors to start looking at his possible successor. Even though the odds of Powell being fired are generally low according to polls and speculation websites, the repeated talk of Powell’s replacement has caused a shift in focus for markets.

Investors, always looking ahead, seek to position themselves before broader market moves. Looking back at interest rate policies since 2020, investors were forward-looking so aggressively that in one instance, Powell had to directly tell them to stop buying. This means that Trump’s repeated hammering of Powell to the press is being eaten up by investors, keeping buying pressure steady in risk assets.

Even Christopher Waller, Federal Reserve Governor, has begun to capitalise on this personally. He has recently criticised Powell’s tariff-based interest rate justification, saying that tariffs are a one-off hit, so a consistently high rate is not justified. If this doesn’t look like pandering to Trump, then also consider his recent statement that if Trump wants him to be the next Fed Chair, he will take the job.

Waller has backed up his stance by mentioning lower consumer spending and a fall in job market gains. He thinks a good rate would be 3%. Trump, however, thinks that 1% would be ideal. Powell has stuck to his guns and his story of tariffs being inflationary.

One of the biggest catalysts for gold, silver, stocks, and crypto can be interest rate cut announcements, which mean more money will wash through markets. In less than one second after a cut is announced, markets can spike upward aggressively. Typically, the key uncertainty lies in how Fed officials are leaning. Now, the issue is being highly concentrated into a hawk-versus-dove issue. Investors are looking less at Powell flipping and more at him being generally an inflation hawk. The next chapter of getting a dovish Fed Chair could be the clear 180-degree turn that longer-term investors can bank on.

Until that time, Trump and other members of the government had been working to discredit Powell based on his policies and allegedly lying to Congress about renovations. Whether this will influence Powell or not, it has caused cracks in the Fed’s reputation and has shone a light on its lack of oversight. It also attempts to build a moral backdrop for talk of replacing Powell. Even if the odds of a leadership change remain slim, markets—ever forward-looking—are clearly entertaining the idea. The prospect of a dovish Fed Chair could fuel optimism for a liquidity-driven rally unlike anything seen in recent years.