From Powell to Puppet
Trump’s next chair could turn monetary policy into a circus
Trump just said the quiet part out loud. He wants Fed rates at 1%, and anyone who won't deliver doesn't get the job. "I'm going to put somebody that wants to cut rates," he said Friday, calling Powell "stupid" and demanding his resignation.
May 2026 can't come fast enough. That's when Powell's term expires and Trump can install his rate-cutting puppet.
The math is brutal. With inflation still running hot, 1% rates mean negative real returns for savers. Your purchasing power gets destroyed while borrowers party. Money floods out of savings into anything promising yield. Stocks explode, real estate goes parabolic, cash becomes trash.
Here's where it gets ugly. Trump's tariff obsession creates the perfect inflationary storm. Tariffs jack up import costs while cheap money boosts demand. The USD is already slipping, and this policy mix is paralyzing domestic investment. We're looking at speculative bubbles everywhere while productive capital formation dries up.
But mortgage rates won't follow the Fed down. Long bonds will price in massive inflation risk, refusing to play along. We'll get stock market mania and unaffordable housing. Worst of both worlds.
The international picture is devastating. Why would anyone hold dollars if we're not willing to sustain positive real rates until inflation hits target? We'd be doing exactly what failing currencies do: devalue and inflate away problems. Putin couldn't ask for a better gift. Twenty years of mostly negative real rates since 2008, and now Trump wants to finish the job.
Home prices will skyrocket with negative real rates. The stock market could crater any moment. Bonds get obliterated. Fixed income becomes fictitious income. Homes inflate, wages don't. Cash melts, and the middle class gets hollowed out.
Where exactly do you invest safe money in this environment? Maybe someone should create a guns and ammo ETF.
The only way to force rates to 1% is massive QE: printing money to buy debt. It's MMT in action, the same strategy bolstering gold and bitcoin. The irony is delicious. Trump's promoting policies that make his crypto investments more valuable by destroying the dollar.
Powell won't be bullied. He knows negative real rates pull spending forward and create more inflation. The economy contracted 0.2% recently, suggesting current policy might be too tight, but cutting rates while building tariff inflation is suicide.
The politics are clear. Borrowers win, especially those with student loans. Asset owners see portfolios surge. Savers and retirees get crushed. It's brilliant short-term politics and catastrophic long-term economics.
Treasury Secretary Bessent, Powell's likely replacement, is walking a tightrope. He's downplaying the "shadow chair" concept while staying Trump-aligned. Smart, because whoever inherits this mess needs to satisfy political demands while maintaining market credibility.
Here's the kicker: this strategy might backfire spectacularly. Instead of sustainable growth, aggressive cuts could trigger inflation that forces even higher rates later. We get economic whiplash plus collapsed currency credibility.
Trump had the unenviable task of cleaning up his own mess, except this time he can't declare bankruptcy and disappear. The institutional damage from politicizing the Fed will outlast his presidency by decades.
The smart money is positioning for disaster. Gold, bitcoin, anything that protects against currency debasement. When a president explicitly tells you he's destroying monetary discipline, listen.