A Possible Strategic Scenario for the Federal Reserve, Overlaid with Donald Trump’s Political Stance and a “Theatrical Play” Between Powell and Trump

(January 2025 – late 2025, focusing on the rhetoric of disputes and economic strategies)

At the beginning of 2025, global financial attention centers both on the speeches of the Federal Reserve (Fed) Chair, Jerome Powell, and on the unconventional rhetoric of former (or current) President Donald Trump. The hypothesis describes a three-phase plan by which the Fed, under Powell, maintains or lowers interest rates to stimulate the economy and foster market optimism, then, once confidence has peaked, abruptly raises rates. Meanwhile, a “play” or “public performance” unfolds between Powell and Trump, featuring exchanges about how independent the Fed really is and who truly “knows best” how to manage the American economy.

1. Initial Phase (January – Spring 2025): Friendly Speeches and Pro-Growth Rhetoric

Fed Context

? On January 29, 2025, Jerome Powell delivers a highly anticipated speech. He announces either the maintenance of current interest rates or a marginal rate cut, emphasizing that macroeconomic indicators suggest a soft landing and that inflation remains (for now) under control.

? Technology investments—especially in Artificial Intelligence (AI)—are in the spotlight, with low interest rates fueling capital inflows into innovative companies.

Overlay with Trump’s Policy and Discourse

1. Apparent Alignment: During this period, Trump publicly seems to endorse Powell’s stance, praising the Fed’s “relaxed” policy and claiming it is “making America stronger.”

2. Continued Pro-Business Policies: Tax cuts, deregulation, and infrastructure investments all align with the Fed’s approach, sending a strong signal of unity to observers (the public and investors).

3. The Start of the ‘Play’: Minor rhetorical clashes begin to surface. Trump warns, “I hope nobody gets the idea to raise rates anytime soon!” Powell counters that the Fed is “driven by data, not politics.” While not yet a full-blown conflict, the stage is set for a future dispute.

Market Impact

? Heightened optimism and increased investment, particularly in AI and high-yield sectors.

? Stock markets move upward, and foreign capital flows into the U.S. due to relatively low rates and positive rhetoric.

2. Consolidation Phase (Spring – Early Summer 2025): Trade Negotiations and Apparent Harmony

Fed Context

? Interest rates remain low or see only a negligible uptick, insufficient to shift market direction. Powell and other Fed officials continue to promote the soft landing narrative, indicating that the U.S. economy is robust and competitive.

? Official macro data continues to appear “hopeful,” and inflation does not yet seem out of control (although signs of an uptick may be emerging beneath the surface).

Overlay with Trump’s Policy and Discourse

1. A Useful ‘Truce’: Trump is in the midst of negotiating advantageous trade deals; he benefits from low rates and a stable dollar to reinforce the image that “business in the U.S. is booming.”

2. Praises for the Fed: Trump states (on social media or in interviews) that Powell is “doing a great job,” while subtly adding, “I hope he keeps it that way and doesn’t listen to those inflation alarmists.” Such remarks let Trump position himself as someone who “knows better” while simultaneously exerting public pressure.

3. Preparing the Stage: Behind the scenes, rumors grow that inflation might justify rate hikes. Analysts at the Fed are reportedly suggesting a possible policy shift. Official rhetoric remains silent on any immediate pivot, and Trump appears to disregard the warning signs.

Market Impact

? The bull market sentiment intensifies; retail and institutional investors increase their positions, while tech (AI) companies expand aggressively.

? A solid foundation (a “cushion”) forms to dampen any potential shock later on.

3. The Surprise Phase (Mid – Late Summer 2025): Rate Hikes and the Public Powell–Trump “Conflict”

Fed Context

? At the peak of market confidence, with equity indices reaching high levels, the Fed unveils a significant policy shift—raising interest rates to counter “worrying inflation data” and cool an overheated economy.

? Powell delivers a firm message: “The Fed’s responsibility is to ensure price stability and protect long-term economic health, regardless of public commentary. The data indicate a stronger intervention is necessary.”

Overlay with Trump’s Policy and Discourse – The Public Performance Comes into Focus

1. Trump’s Fierce Criticism: Immediately after the announcement, Trump claims, “Powell is making a huge mistake, as I’ve warned many times. We’re headed for trouble!” implying that the Fed Chair doesn’t understand political realities or the American people’s needs.

2. Powell Defends the Fed’s Independence: He counters by reiterating, “The Fed does not answer to any administration; it follows the law and the data.” This back-and-forth, amplified by the media, serves a dual purpose:

? For Powell: The Fed’s image of professionalism and autonomy grows stronger, as it is seen to be “doing what must be done” despite political pressure.

? For Trump: He bolsters his image as a “combative leader” who “protects” citizens from “bankers playing with interest rates.” Ironically, raising rates at this juncture can actually benefit Trump by strengthening the dollar and reinforcing U.S. trade positions.

3. Rising Tensions: Headlines proclaim “Crisis Between the White House and the Fed” (or “Trump vs. Powell – The Final Round”). Behind the scenes, the administration sees the dollar gain strength, capital inflows continue, and the Fed justifies the rate hike with inflation figures and economic indicators, highlighting the “maturity” of monetary policy.

Market Impact

? While a new cycle of rate hikes does trigger market corrections and spikes in volatility, investors have already realized substantial gains in the previous phase.

? Retail investors are somewhat shielded compared to a scenario without that buildup period, and well-grounded companies can weather the shock.

? The perception that “the American system works” is reinforced: there’s a balance between political desires and the central bank’s decisions, attracting even more global capital.

Conclusions and Geopolitical Dimensions

In this “theatrical performance”, the apparent conflict between Powell and Trump becomes a critical rhetorical element:

? Trump presents himself as the champion of the “people’s will” who disputes the “technocratic Fed” when rate hikes hurt borrowers; yet in reality, he benefits from the stronger dollar and economic advantages.

? Powell and the Fed assert their role as an independent institution, acting “in the name of data and stability” while resisting political influence. Both sides paradoxically emerge with strengthened images: Trump remains true to his combative style, and the Fed is hailed for safeguarding macroeconomic balance.

Internationally, the U.S. faces its usual strategic rivals (particularly China) with a robust currency and a market still seen as a prime investment destination. Additionally, AI and advanced technology investments get a boost from the low-rate environment of the first half of the year and remain relevant even after rates rise, thanks to their already-consolidated financial positions.

Thus, the interplay of the Fed’s strategy and Trump’s political theatrics outlines a scenario where each actor carefully performs a role to achieve specific objectives:

? Powell and Fed officials: maintain financial stability and defend their professional reputation.

? Trump: leverages both electoral and ideological capital, casting himself as “the voice of the average American,”while also reaping the advantages of higher rates and a strong dollar at the right time.

? The U.S. economy: experiences a period of exuberance (initial phase), followed by a “controlled landing” (via rate hikes). Though rhetorical tensions arise, this fits a broader strategic aim of reinforcing the U.S.’s global standing.

Goldman Armi Laszlo, financial analyst.