Fed and Trump Will Clash in 2025 - Areas That Could Encounter Problems

The prolonged tension between President-elect Donald Trump and Federal Reserve Chairman Jay Powell is expected to remain a focal point in 2025, as economic policies and institutional dynamics set the stage for potential conflicts. Donald Trump, re-elected in November 2024, frequently criticizes Powell. This raises questions about how the relationship between the White House and the Federal Reserve can develop in the coming year. Throughout 2024, Trump publicly criticized Powell's leadership abilities, arguing that the president should have greater influence over the Federal Reserve's decisions. During the campaign, Trump claimed Powell had "done a very bad job" and suggested that his administration might reconsider the Fed's independence. Federal Reserve spending under 'microscope' After Trump's reelection, Powell strongly denied rumors of his resignation, emphasizing his intention to serve out his term, which ends in May 2026. However, even if Powell remains in his position, analysts still predict new disagreements between the government and the Fed. The elected president has appointed billionaire entrepreneur Elon Musk and entrepreneur Vivek Ramaswamy to head the Department of Government Efficiency (DOGE). The duo has committed to reforming federal spending and their plan may involve significant changes at the Federal Reserve. Recently, Musk has called the Fed "unreasonably overstaffed" on his social media platform X, implying the possibility of workforce reduction. Please provide the text to be translated. According to a report from Yahoo Finance, the Federal Reserve employs about 24,000 individuals across the United States, with 86% of the workforce employed in regional reserve banks Headquartered in Washington, DC, with approximately 3,000 employees. Unlike most federal agencies, the Fed operates independently of taxpayer funding, self-funded through revenue from government securities. Although independent, critics do not consider the operating costs of the Fed insignificant. In 2024, the net operating costs of the Fed are budgeted at $7.1 billion, accounting for about 0.1% of the total federal budget. Traditionally, the Fed has sent excess revenue to the U.S. Treasury, transferring nearly $1 trillion from 2012 to 2021. Trump's economic policy conflicts with the Fed's plan Trump recently announced plans to impose high tariffs: 10% on imports from China and 25% on goods from Mexico and Canada. These measures, aimed at promoting domestic production, are expected to have a significant economic impact. EY's Chief Economist Gregory Daco warns that tariffs could lead to stagflation, marked by slower economic growth and higher inflation. He estimates that tariffs will reduce US GDP by 1.5% by 2025 while increasing inflation by 0.4%. Financial market volatility may also occur, adding pressure to an economy already grappling with persistent inflation. However, not all experts share Daco's concerns about inflation. Former St. Louis Fed President Jim Bullard, who served in the first term of Trump, argued that the impact of reducing tariff growth could offset any inflationary impact Bullard noted that "The impact on the global economy will be larger than any impact on prices", raising doubts about the view that tariffs alone could push inflation higher. Interest rates are being questioned The forecast for the December 2024 meeting of the Federal Reserve indicates a cautious path for interest rates. The market predicts that the federal fund rate will decrease slightly to 3.9% in December 2025, compared to the current target range of 4.25-4.5%. However, these forecasts seem overly optimistic when considering the potential inflationary pressures from Trump's economic stimulus program, including tax cuts, tariffs, and immigration policies. Financial Times' financial analysts note that the Fed's cautious stance may differ from the more aggressive interest rate cuts strategies of the European Central Bank (ECB) and the Bank of England, complicating the global economic context further. Trump's economic policies, combined with Musk and Ramaswamy's cost-cutting initiatives, could pose significant challenges to the Federal Reserve. Although the Fed has previously operated with considerable independence, tensions with the White House could test that autonomy. DYOR! #Write2Win #Write&Earn $BTC {spot}(BTCUSDT)