Trump said: The next Fed chair must be "super dovish," and the nominee will be announced soon.

On Wednesday local time, U.S. President Trump made a clear statement in a national speech that the next Federal Reserve Chair must be someone who believes in a "significant rate cut," and he promised to announce this key appointment soon. This statement once again highlights Trump’s dissatisfaction with the current monetary policy and his intention to influence the Fed’s independence.

Trump said in his speech: “I will soon announce our next Federal Reserve Chair, and this person believes in significantly lowering interest rates; mortgage rates will go down further.” The current Fed benchmark rate range is 3.5%-3.75%, while Trump previously demanded rates to be cut to the “crisis level” of 1%.

Last week, Trump revealed in an interview with The Wall Street Journal that he leans toward selecting former Fed governor Kevin Warsh or White House economic advisor Kevin Hassett as Chair. More worth noting is that Trump explicitly stated that the next Fed Chair should consult with him on rate setting, breaking the tradition where the President typically does not interfere in interest rate decisions.

All three candidates support rate cuts, but to varying degrees

The known finalists currently include White House economic advisor Kevin Hassett, former Fed governor Kevin Warsh, and current Fed governor Christopher Waller. All three advocate for rates to be lower than current levels.

However, none of the candidates have explicitly stated that they would push the Fed to cut rates to Trump’s requested level. In some cases, Trump has demanded rates to be cut to the crisis level of 1%, but even Stephen Milan, his latest appointee to the Fed, does not support cutting rates that low.

On Wednesday, Trump continued interviewing candidates and met with Waller. Waller was among the early advocates for rate cuts among current Fed policymakers, but he is also a staunch defender of Fed independence.

According to a Wallstreetcn article, Waller said in Wednesday’s speech that as the job market weakens and inflation is under control, the Fed still has 50 to 100 basis points of room for rate cuts, but there is no need to rush—the rate direction will be adjusted steadily and gradually toward neutral. He believes that since jobs have not collapsed and inflation expectations remain stable, the conditions are right for moderate cuts; the Fed will maintain a balance between growth and inflation control.

Trump demands Fed Chair consult him on rate decisions

Last week, Trump told The Wall Street Journal that he believes the next Fed Chair should consult him on rate setting. This demand deviates from the tradition in which the President leaves rate-setting power to the Fed.

“Normally, this is not done anymore. But in the past, this was standard procedure; it should be done now too,” Trump said. “That doesn’t mean—I don’t think he should do exactly as we say. But we really are—I am a smart voice, and I should be listened to.”

This statement has raised concerns about Fed independence. The Fed’s independence is seen as a key factor in maintaining monetary policy effectiveness and market confidence.

Hassett previously stated that if chosen to lead the Fed, he would consider the President’s policy views, but central bank rate decisions would remain independent. Hassett explicitly refuted the idea that the President's views carry the same weight as FOMC voting members. He said policymakers are free to reject the President’s views and “vote differently.” Hassett said, “He won’t have any weight. Only if his opinion is good and data-driven will it be important.”

Rate cuts have limited impact on mortgage rates

Trump has repeatedly expressed his desire to lower mortgage rates, but the rates controlled by the Fed have limited effect on long-term borrowing costs. Mortgage rates are more influenced by longer-term rates that the Fed has less sway over, such as the 10-year U.S. Treasury yield.

The 10-year Treasury yield is mainly driven by investor expectations for U.S. economic growth and inflation, which have not changed much over the past year. Since Labor Day, mortgage rates have remained in the 6.3%-6.4% range, showing little sign of decline.

This means that even if the Fed cuts rates significantly as Trump demands, it may not achieve his political promise of lowering home loan costs.

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