The struggle between Trump and Powell will likely determine which of the two poisons Americans will have to swallow: the distasteful choice between a recession next year and a full-blown financial crisis in the years beyond
Since the beginning of the year, Trump has been throwing a temper tantrum when it comes to Powell. First the two sat down for a White House dinner in February. Then,
Unlike Trump, Powell seems like a nice enough guy—calm, measured, avuncular, thoughtful, if a little cerebral. He’s very much in the mode of past Fed chairmen, except that Powell is not an economist. In fact, he made his money first as an investment banker at the old Dillon, Read and then by doing leveraged buyouts of industrial companies at the Washington powerhouse Carlyle Group. He has a net worth estimated to be as much as $100 million.
Trump has put Powell in a vise. If Powell does the right thing, and raises interest rates to where they should be—in order to better compensate investors for the risk they are taking in the bond market—then he could lose his job. But if he lowers interest rates—as most observers, including Gundlach, believe will happen later this year—then he will look like he has caved to Trump’s political pressure, further eroding the Fed’s claim to independence.
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