Renowned economist Claudia Sahm expressed concerns over a proposal by a Trump advisor to establish a “shadow Fed chair,” potentially undermining current Federal Reserve Chair Jerome Powell.
What Happened: Sahm’s comment came in response to a post by Heather Long, an Economic columnist for The Washington Post, detailing a plan proposed by Scott Bessent, the founder of hedge fund Key Square Group and Trump advisor.
According to Long, if Trump wins the upcoming election, he will nominate a new Fed chair in 2025, a year before Powell’s tenure ends in May 2026. The move is aimed at turning Powell into a “lame duck” as markets and CEOs start paying more attention to the “shadow Fed Chair.”
Long quoted Bessent stating to Barron’s Ideas Editor Matt Peterson, “No one is really going to care what Jerome Powell has to say anymore.”
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Why It Matters: The proposal comes amidst Trump’s public disapproval of the Federal Reserve's recent decision to cut its benchmark interest rate by half a percentage point. Trump suggested this action could indicate a faltering U.S. economy or be politically motivated.
Earlier, Trump had assured that he would not seek to displace Powell before the end of his term. This assurance was made amidst his consideration of JPMorgan Chase & Co CEO Jamie Dimon for the Treasury Secretary position if he wins the forthcoming election.
Trump’s proposal of presidential control over the Fed's rate decisions had previously drawn criticism, with Bank of America CEO Brian Moynihan emphasizing the importance of the Federal Reserve’s independence.
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