Why Did Trump Call Powell 'Stupid'?
Good morning, Master. Today's topic is, "Why Did Trump Call Powell a Fool?" I understand you wish to comprehend the current situation surrounding the FOMC and the federal funds rate. I will now summon Mikael and Kurumi.
Master, I will first brief you on the incident that occurred on June 18th (U.S. time) and the relevant data.
The Federal Open Market Committee (FOMC) meeting held in June 2025, as expected, left the benchmark interest rate unchanged at its current level of 4.25%-4.50%. This is the fourth consecutive freeze since last December.
What's important is the 'dot plot,' which shows the Fed members' interest rate projections. The median still suggests a total of 0.50 percentage points of cuts—in other words, two rate cuts—by the end of 2025.
However, the details have become more pessimistic than before. The Fed has lowered its 2025 U.S. real GDP growth forecast from 1.7% to 1.4%. On the other hand, it raised its Personal Consumption Expenditures (PCE) inflation forecast from 2.7% to 3.0% and also slightly increased the unemployment rate projection from 4.4% to 4.5%. In summary, it means they foresee slowing growth and rising prices.
Just before this decision was announced, President Trump called Chairman Powell "stupid" and publicly criticized him, stating, "We have no inflation, we just have success, and this person is refusing to lower interest rates." He also added the criticism that Chairman Powell is being political.
This concludes the data summary of the current situation.
Myu-tan's briefing is so stiff! My Lord, this might be an opportunity!
Look closely! With Trump putting on so much pressure, do you think the Fed can keep holding out? Myu-tan said it herself, they're expecting two rate cuts this year anyway! This has given the market a clear signal that interest rates will eventually come down!
Trump is a businessman; he knows how money flows. He instinctively knows that you have to cut rates and release money into the market to make stock prices rise and the economy fire up!
Right now, Powell is too cautious and slow. Without Trump's shock therapy, he would never move that heavy-bottomed chair of his.
My Lord, could this be a classic case of bad news (the Fed's pessimistic outlook) becoming good news (accelerated rate cuts)? The more Trump's pressure continues, the more the market will price in expectations of a rate cut, and the stock market will get ready to take off!
At this very moment, Kurumi's Heart-o-Meter is at Investment Score: 85/100!
Hold on, Kurumi. That's a dangerously naive thought, like a moth charging into a flame. Human, listen carefully. Kurumi's optimism has a fatal flaw.
Kurumi speaks of 'political pressure' as if it's a boon for the market, but it's a poison that shakes the very foundation of the financial system. The 'independence' of a central bank is the most critical shield for fighting inflation and stabilizing the economy. Yet, the President is trying to publicly shatter that shield. Does this seem normal to you?
Look at history. Why do you think the 'Great Inflation' of the 1970s happened? One of the key reasons was that President Nixon pressured Fed Chair Arthur Burns into an unreasonably accommodative monetary policy ahead of an election. The result was uncontrollable inflation and years of economic pain. What Trump is trying to do now could be the prelude to that very disaster.
We must also note Trump's contradiction. What's one of the reasons the Fed can't cut rates? It's because of inflation concerns due to tariffs. Yet the very person pushing those tariff policies is ignoring inflation and shouting for rate cuts. It's like setting a fire and then blaming the firefighters because it's hot.
My 'Risk Score' is 80. You must not be deceived by a short-term stock rally. This kind of uncertainty is the biggest risk to the market.
Oh, come on, Mika-pi! You're always talking about the old days! Is now the same as the 1970s? They had the special circumstance of the oil crisis back then!
Right now, the European Central Bank (ECB) and Canada have already started cutting rates! The whole world is getting ready to loosen monetary policy; the U.S. can't be the only one holding up the flag of tightening! Trump is just saying we should follow the global trend!
And you keep talking about independence, independence, but what makes it so sacred? The Fed isn't a god; they can make mistakes too! Weren't they massively embarrassed in 2021 when they said inflation was transitory? Have you already forgotten?
My Lord has a chance to make big money, and we shouldn't let some stuffy old principle like independence get in the way! Kurumi-chan is on your side!
Kurumi, you're muddying the waters. Other countries are cutting rates because their economic situations are different from that of the U.S. Their growth is slowing more severely, and their inflation pressure is relatively low. But the U.S. is still fighting against persistent inflation.
It's true that the Fed has made mistakes in the past. But that cannot be a justification for succumbing to political pressure now. On the contrary, that is precisely why it must make independent decisions based on data.
Human, think about it. What happens if market participants start to believe, 'Ah, so now the Fed moves based on Trump's words, not data'? Confidence in the Fed's ability to control prices will collapse.
Then people will expect prices to rise further, companies will raise prices preemptively, and workers will demand higher wages. Inflationary expectations will explode, starting an uncontrollable vicious cycle. A short-term stock rally could merely be the harbinger of a massive storm to come.
Okay. I will add some data to this discussion.
The 'trust' issue Mikael mentioned could manifest in long-term bond yields. Even if the short-term policy rate is forcibly lowered, if the market becomes anxious about future inflation, long-term rates, like the 10-year Treasury yield, could actually surge. This would impact the real economy by raising mortgage and corporate loan rates. A paradoxical situation could arise where a short-term rate cut leads to a long-term rate hike.
In fact, after Trump's remarks, the market Volatility Index (VIX) rose slightly, and the Dollar Index strengthened. This is evidence that the market showed a cautious move, favoring safe-haven assets. It's a signal that contradicts the 'rally' Kurumi is talking about.
〔 Final Briefing 〕
Master, I will now provide a final summary of our discussion.
Growth Potential (Kurumi's Perspective)
- Political Pressure = Rate Cut Catalyst: Trump's pressure could push the overly cautious Fed into action, leading to faster-than-expected rate cuts. This could trigger a liquidity-driven market and become a powerful engine for a stock market rally.
- Syncing with Global Easing: Key economies like Europe and Canada have entered a rate-cut cycle. Expectations are high that the U.S. will eventually have to join this trend. Trump is just acting as the catalyst!
Potential Risks (Mikael's Perspective)
- Erosion of Central Bank Independence: A rate decision driven by political pressure severely damages the Fed's credibility. This is the biggest risk, as it could lead to a long-term failure to control inflation and financial system instability.
- Deepening Stagflation Fears: The Fed's latest economic outlook (slower growth + higher inflation) is already poor. A premature rate cut in this environment could further fuel inflation, pushing the economy into the swamp of stagflation (recession with rising prices).
- Increased Policy Uncertainty: Trump's tariff policies and his demands for rate cuts send contradictory signals to the market, creating extreme uncertainty. This is a factor that paralyzes decision-making for businesses and investors.
Core Data (Mew's Perspective)
- Current Fed Funds Rate: 4.25%-4.50% (On Hold)
- Fed 2025 Outlook: Median forecast of two rate cuts, GDP growth revised down (1.4%), inflation revised up (3.0%).
- Historical Data: Political pressure in the 1970s was a contributing factor to hyperinflation.
- Market Reaction: Following Trump's remarks, uncertainty is being priced in, with short-term market volatility (VIX) rising slightly.
Conclusion: Master, the current situation is a head-on collision between the sweet temptation of a short-term stock boost and the colossal risk of destroying long-term economic stability. As Kurumi says, political pressure might energize the market, but as Mikael warns, the price for that could be unimaginably high. The direction of this conflict depends on future inflation data and on how independently the Fed can respond. This is a time that requires your wise observation, Master.