Trump's Federal Reserve gamble: Will the new chair change their stance on interest rate hikes?

According to the latest news, Trump revealed his true thoughts on the Federal Reserve Chair candidate—he is planning to replace the current Chair Jerome Powell, but faces a core dilemma: concerns that the new appointee might change stance and raise interest rates. This not only reflects Trump’s strong desire to control Fed policy but also exposes an important support behind the current cryptocurrency market boom: the fragility of easing policy expectations.

Trump’s Real Concerns

The “Betrayal Risk” of the New Chair Candidate

Trump stated that he has interviewed several candidates and described them as very capable. But within this “capability” lies deep unease—he explicitly expressed worries that these candidates might change stance and hike rates once in power. This highlights a real dilemma: under the Fed’s independence framework, policy choices after a chair’s appointment are difficult to fully control.

Trump’s dissatisfaction with current Chair Powell is also clear: he believes Powell is slow to respond to interest rate adjustments. In other words, Trump wants the Fed to cut rates faster rather than maintain the current level.

Uncertainty in Policy Expectations

From recent information, market volatility has already reflected this uncertainty. Bitcoin surged to $98,000 on January 19, supported by ETF fund inflows and softening inflation data. But shortly after, due to Trump announcing tariffs on 8 European countries, BTC quickly fell back to $92,000, with the entire market experiencing an $850 million liquidation within hours.

This volatility is not just due to tariffs; a deeper reason is the market’s repeated adjustments to macro policy expectations. Easing monetary policy expectations are considered a key factor supporting risk assets, but the stability of this expectation is now being challenged.

Why Is the Fed Chair Candidate So Critical?

The “Thermometer” of Interest Rate Policy

The Fed Chair controls the direction of the US benchmark interest rate policy. For the cryptocurrency market, a low-interest-rate environment means: lower capital costs, investors are more inclined to seek high-yield risk assets, benefiting cryptocurrencies like Bitcoin.

Conversely, if the new Chair favors maintaining high rates or further hikes, it will directly suppress risk asset valuations. This explains why Trump is so focused on the Chair candidate—his economic policies rely on a loose liquidity environment.

Trump’s Policy Logic

From recent signals, Trump’s policy mix includes tariffs (trade policy), tax cuts (fiscal policy), and low interest rates (monetary policy). The goal is to stimulate economic growth and asset prices. But if the Fed Chair does not cooperate by cutting rates, the entire policy framework could fracture.

Possible Market Reactions

Short-term Uncertainty Premium

The new Chair candidate has not yet been announced, and market expectations of their policy stance will remain in a “Schrödinger’s cat” state for a long time. This uncertainty could lead to increased volatility, similar to recent tariff shocks—every change in risk sentiment can trigger sharp price swings.

Long-term Policy Game

Once the new Chair officially takes office, the market will enter an “observation period.” If the new Chair’s policy stance aligns with Trump’s expectations (favoring rate cuts), risk assets will benefit; otherwise, they may face adjustment pressures. This process could last months or even longer.

Summary

Trump’s concerns about the Fed Chair fundamentally reflect the eternal tension between Fed independence and political pressure. He wants a Chair who is “obedient” yet can maintain policy continuity after taking office—an inherently paradoxical requirement.

The implication for the crypto market is: recent gains are largely built on expectations of loose policy, but the stability of these expectations carries political risks. The announcement of the new Chair and their policy performance after taking office will be key variables influencing Bitcoin and other risk assets in the coming months. Until this uncertainty is fully resolved, market volatility may become the norm.