Continued - Part 2 -
Our premium channel member, Naor Mishali, decided to take on the challenge and clarify for you what exactly is happening in the world right now!
"American Chess"
Part 2 - Fed Chair Jerome Powell – the man holding the brakes!
After understanding in the previous chapter how Trump plays economic chess, with sharp moves aimed at stimulating the economy, increasing exports, encouraging inflation, and growing out of debt, let's now understand the figure standing opposite him: Fed Chair Jerome Powell.
But Powell is not 'the man delaying reforms,' but rather the man who fully understands Trump's plan and chooses to stand against it.
He completely grasps Trump's move!
Trump wants to generate rapid growth through a combination of:
1. Expansionary fiscal policy (tax cuts, increased spending).
2. Imposing tariffs on imports to favor American products.
3. Influencing the Fed to lower interest rates to make credit cheaper and weaken the dollar.
4. Encouraging inflation, which causes debt to erode 'on its own' over time.
In simple terms: when there is more money in the market, prices rise, and debt appears smaller relative to the larger economy created.
But Powell? He looks at it completely differently!
Powell, in fact, sees the risk, not the opportunity.
In Powell's view,
The current situation, with a temporary slowdown in manufacturing and a decline in global trade, is not a real recession but a result of political actions.
That is, an 'artificial' slowdown caused by the tariffs themselves.
So why cut interest rates to address a problem created by the administration?
If he cuts interest rates now, he risks sending the economy into an inflationary spiral, especially when markets are already sensitive, debt is high, and the world is watching America closely.
Powell is deliberately applying the brakes so there will be a brake if needed.
The Fed, unlike the administration, also needs to consider the scenario where Trump's policies go awry:
- What if the trade war escalates?
- What if inflation gets out of control?
- What if the banking system is shaken?
If he 'cooperates' with interest rate cuts now, he will be left without ammunition on the day the situation becomes truly severe.
And therefore, he explicitly states:
"We will wait for clarity, we will not rush to cut interest rates."
And why?
Because for him, an interest rate cut requires an 'inflationary momentum,' and that is precisely what Powell is trying to curb.
He looks at the slowdown in manufacturing, the decline in imports, the reduction in trade, and sees not a real recession, but an artificial slowdown resulting from tariff policies.
And therefore, he says, this is not a reason to cut interest rates. On the contrary, if we rush, we will lose control.
Trump wants inflation, Powell wants an anchor.
Trump is counting on more inflation to help him:
- Americans' nominal wages will rise.
- The sense of wealth will increase.
- Tax revenues will grow.
- The national debt will erode.
But Powell sees it completely differently:
- Inflation erodes the dollar.
- It harms the middle class and pension savings.
- It creates volatility and threatens market confidence.
And in practice? We see two people pulling the steering wheel in different directions.
Bottom line: who is right?
There are no good guys or bad guys here; there are two different approaches:
Trump plays for the short to medium term, aiming to stimulate the economy and create a sense of prosperity.
Powell insists on caution, consistency, and credibility, even if it means holding the brakes.
Meanwhile, the market is in the middle.
On one hand, expectations for an interest rate cut; on the other, a Fed chair who is not cooperating.
Now eyes are on the inflation report, which likely means:
- Trump will continue to push regardless of the report's outcome.
- Powell will only want to react to a high report with supporting economic data.
What about the market?
Part of the market probably understands the strategy and part does not, but there is likely a consensus in the market on one thing: they want an interest rate cut, even without understanding the full impact on Trump's moves.
Coming soon - Part 3 and final!