Will the Fed Compromise with Trump? A Review of 70 Years of Power Struggles Between the President and the Federal Reserve

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Trump will personally preside over the swearing-in ceremony of the new Federal Reserve Chairman Walsh, breaking recent tradition and once again bringing the 70-year power struggle between the White House and the Fed under the spotlight. History shows that every Fed Chairman seeks a balance between political pressure and policy independence, and Walsh is no exception—but the situation he faces is far more complex than outsiders imagine.

According to the Wall Street Journal citing White House officials, Trump will personally preside over Walsh’s swearing-in ceremony at the White House this Friday. This breaks recent tradition—the ceremony is typically held inside the Federal Reserve, and presidents rarely attend. The last time a Fed Chairman’s swearing-in ceremony was held at the White House dates back to Alan Greenspan in 1987, nearly forty years ago.

The Caitong Securities fixed income team (Sun Binbin, Sui Xiuping, Lu Xingchen) pointed out in a recent research report that although Walsh is not a "dovish Chairman," it cannot be ruled out that there will be no rate cuts this year—the relationship between the Fed Chairman and the US President is not static, but changes over time.

However, Walsh is taking over a Federal Reserve that is far from unified. In the FOMC meeting at the end of April, three board members—Hammack of Cleveland, Kashkari of Minneapolis, and Logan of Dallas—cast the most unusual dissenting votes since October 1992. They were not opposed to rate cuts themselves, but believed that even hinting at consecutive rate cuts should not be done. This means Walsh inherits a central bank with internal fissures, while Trump’s expectation of him is precisely rate cuts.

White House Inauguration Ceremony: A Politically Charged Arrangement

The arrangement of the inauguration ceremony itself sends a strong signal. When Powell took office in 2018, the ceremony was held inside the Federal Reserve, and Trump did not attend; the most recent incumbent president to personally attend a Fed Chairman’s inauguration was George W. Bush, who attended Ben Bernanke’s swearing-in ceremony in 2006. Trump’s personal involvement this time directly highlights his close attention to this appointment.

Procedurally, the transfer of power this time is unusually protracted. Walsh was confirmed by the Senate last week and granted a four-year term; Powell’s term as Chairman expired last weekend, but he has stated he will remain on the Fed board as a member until January 2028. Walsh also agreed to divest some personal investments before officially taking office, which delayed the transfer process to some extent. During the transition, Fed Vice Chairman Philip Jefferson represented the central bank at the G7 Finance Ministers and Central Bank Governors meeting held in Paris on Monday.

70 Years of Power Struggle: From Martin to Powell

The Caitong Securities report systematically reviews the history of relationships between Fed chairmen and presidents since 1960, outlining a clear trajectory of evolution.

William Martin had to rely solely on personal credibility to maintain independence when there was no institutional safeguard. After taking office, he refused to act as an agent for the Treasury, shifted the Fed’s decision-making center from New York to Washington, and extended the decision-making power to the entire FOMC. When Truman saw him on the streets of New York, he merely uttered "Traitor" and walked away.Arthur Burns’s failure stemmed from his disbelief that monetary policy could end inflation, opening the door to Nixon’s political pressure. Nixon pressured him through personal letters, interfered with the board’s composition, and even sent senior advisers to directly lecture Fed staff. Burns formally maintained institutional independence, but substantially compromised on policy direction, ultimately destroying the Fed’s credibility.William Miller exemplified direct political coordination—deliberately chosen to align with Carter’s political goals, but was ultimately outmaneuvered by external crises. By the summer of 1979, inflation had become Carter’s greatest political crisis; Miller was transferred to the Treasury to make way for a true inflation hawk.Paul Volcker upgraded independence from "guarded by personal credibility" to "personal credibility + institutional framework + market credibility"—creating a triple moat. Carter knew appointing Volcker would have political cost but did so anyway—his policy adviser Eizenstat said it "ultimately squeezed out inflation at the cost of high unemployment and also squeezed (Carter) out of a second term." In 1984, Reagan ordered Volcker not to hike rates before the election and launched an "FOMC ambush" through board appointments in 1986, but neither fundamentally affected policy.Alan Greenspan, speaking in technocratic jargon, kept the power struggle below the surface: he fiercely clashed with George H. W. Bush, reached "Washington-style peace" with Clinton, but supported tax cuts during George W. Bush’s term, becoming the first Fed chairman to actively "invade" fiscal policy territory.Ben Bernanke represented the model of White House and Fed default alignment in crisis situations; his main pressure came from Congress and within the Fed, not the White House. Janet Yellen responded to Trump’s attacks with "non-political language + strict self-restraint," becoming the first Fed chair since Carter replaced Burns not to be reappointed by a new president.Jerome Powell faced the most severe presidential pressure since Burns. During Trump’s first term, Powell cut rates three times consecutively and stopped balance sheet reduction under both external political pressure and internal economic judgment; in the second term, Trump investigated the Fed’s headquarters renovation cost overruns and hinted at firing Powell. Powell responded with much tougher tactics, raising the Fed’s independence defense to unprecedented legal, written, and public heights. In his last meeting as chairman, the FOMC maintained rates with a rare 8-4 split.

Walsh’s Predicament: A New Chairman Facing Internal and External Challenges

The situation Walsh inherits is quite rare in history—he faces both rate-cut pressure from the White House and hawkish resistance from the FOMC internally.

Walsh is not a traditional dove. In 2006, at age 35, he was appointed by George W. Bush as a Fed governor, one of the youngest ever. After QE2 was launched in 2010, he became the only FOMC member to publicly question expansion, and resigned early in 2011, widely interpreted by markets as silent protest against the Fed’s overly loose policy. His background at Morgan Stanley, as White House NEC executive secretary, and close ties to the Republican core suggest his expected policy independence is no lower than previous chairmen with similar backgrounds.

Caitong Securities summarized four key points from Walsh’s recent speeches and Q&A:

First, his definition of Fed independence is finer than his predecessors: he believes political commentary on monetary policy does not affect Fed independence, which is a kind of desensitized handling of Trump’s pressure and leaves room to preserve policy independence without public conflict;

Second, he holds a negative view of forward guidance, meaning markets may need to get used to a more "silent" Fed;

Third, he attaches great importance to inflation and directly refutes Trump’s claim that oil price hikes are "false inflation";

Fourth, he believes productivity gains from AI could make rate cuts possible, echoing Greenspan’s logic on productivity booms in the late 1990s.

Rate Cuts and Balance Sheet Reduction: Direction Clear, Pace Cautious

Caitong Securities believes Walsh’s monetary policy after taking office will likely be "direction clear but pace cautious."

On rate cuts, inflation has been above target for five consecutive years, so stabilizing inflation expectations is a higher priority. Walsh’s focus on inflation, especially his refutation of the "false inflation" theory, shows he will not cut rates easily before inflation clearly returns to target. Short-term demand from data center investment may further offset the space for cuts, slowing the pace due to data constraints. The report notes, if Trump gives Walsh more respect, rate cuts may come sooner; if Trump keeps up high-intensity pressure, Walsh may delay cuts to defend Fed independence.

On balance sheet reduction, Walsh believes the expanded balance sheet has effectively extended the Fed’s monetary policy boundary into fiscal territory, so reducing it is logically necessary. But he also acknowledges that amassing the balance sheet took 18 years, so reduction cannot happen overnight and will be slow and orderly. Also, starting balance sheet reduction without having cut rates is almost a direct provocation against the White House—so its pace will aim to avoid confrontation before the rate cutting cycle begins.

Caitong Securities’ core conclusion: to reprise Greenspan-style management and return to a scarce reserves regime, the first step is to win internal Fed support—acting too hastily will backfire. Judging Walsh’s future policy path should not focus solely on his personal stance or current White House relations, but should be based on macro trends—inflation, growth resilience, oil prices, financial conditions—to deduce the most likely choices across different scenarios.

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