Trump said that the next chairperson of the Federal Reserve must be "super dovish" and the candidate will be announced soon

On Wednesday local time, US President Trump made it clear in his national address that the next chair of the Federal Reserve must be someone who believes in "substantial interest rate cuts", and promised to announce this crucial decision soon. This statement once again highlights Trump's dissatisfaction with the current monetary policy and his intention to exert influence on the independence of the Federal Reserve.

Trump said in his speech: "I will soon announce our next chair of the Federal Reserve, who believes that interest rates will be significantly lowered and mortgage rates will fall further." The current benchmark interest rate range of the Federal Reserve is 3.5% to 3.75%, while Trump had previously demanded that the interest rate be reduced to the "crisis level" of 1%.

Trump disclosed in an interview with The Wall Street Journal last week that he prefers to choose former Federal Reserve Governor Kevin Walsh or White House economic advisor Kevin Hassett as the chairperson. What is more notable is that Trump made it clear that the next chair of the Federal Reserve should consult with him on interest rate setting, which breaks the traditional practice of presidents usually not interfering in interest rate decisions.

All three candidates support cutting interest rates, but to varying degrees

The currently known finalists include White House economic advisor Kevin Hassett, former Federal Reserve Governor Kevin Walsh, and current Federal Reserve Governor Chris Waller. All three of them advocate that the interest rate should be lower than the current level.

However, none of the candidates has explicitly stated that they will push the Federal Reserve to lower interest rates to the level demanded by Trump. Trump has called for interest rates to be lowered to the crisis level of 1% in some cases, but even his newly appointed director, Stephen Milan, does not advocate lowering rates to such a low level.

On Wednesday, Trump continued his interviews with candidates and met with Waller this time. Waller was one of the early advocates for interest rate cuts among the current Federal Reserve policymakers, but he is also a staunch defender of the Fed's independence.

According to a previous article by Wall Street Journal, Waller said in a speech on Wednesday that as the job market weakens and inflation is under control, the Federal Reserve still has 50 to 100 basis points of room to cut interest rates, but there is no need to rush into action. It will gradually and steadily steer interest rates towards neutrality. He believes that the employment has not experienced a sharp decline and inflation expectations are stable, providing conditions for a moderate interest rate cut. The Federal Reserve will maintain a balance between stabilizing growth and controlling inflation.

Trump asked the chairperson of the Federal Reserve to consult with him on interest rate decisions

Trump told The Wall Street Journal last week that he believes the next chair of the Federal Reserve should consult with him on interest rate setting. This requirement deviates from the traditional practice of the president usually leaving the decision-making power over interest rates to the Federal Reserve.

Under normal circumstances, this practice is no longer carried out now. "But in the past this was routine, and it should still be done now," Trump said. This doesn't mean - I don't think he should do exactly as we say. But we are indeed - I am a smart voice and deserve to be heard.

This statement has raised concerns about the independence of the Federal Reserve. The independence of the Federal Reserve is regarded as a key factor in maintaining the effectiveness of monetary policy and market confidence.

Hassett previously stated that if selected to lead the Federal Reserve, he would consider the president's policy opinions, but the central bank's interest rate decisions would remain independent. Hassett explicitly refuted the view that the president's opinion has the same weight as that of the FOMC voting members. He said that policymakers could freely reject the president's opinion and "vote in different ways". Hassett said, "He won't carry any weight." However, if his opinion is good and based on data, then his opinion is very important.

Interest rate cuts have a limited impact on mortgage rates

Trump has repeatedly expressed his desire to lower mortgage rates, but the interest rates controlled by the Federal Reserve have a limited impact on long-term borrowing costs. Mortgage rates are more influenced by long-term rates with less influence from the Federal Reserve, such as the yield on 10-year US Treasury bonds.

The yield on 10-year US Treasuries has mainly been driven by investors' expectations of US economic growth and inflation, and has generally changed little over the past year. Since Labor Day, mortgage rates have remained within the range of 6.3% to 6.4%, showing almost no sign of decline.

This means that even if the Federal Reserve cuts interest rates significantly as requested by Trump, it may still fail to fulfill its political commitment to reducing mortgage costs.

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