Powell is facing a triple dilemma of economic crisis, political pressure, and internal divisions. On March 18, Nick Timiraos, known as the "New Fed Wire," published an article in The Wall Street Journal, delving into the dilemma facing Federal Reserve Chairman Powell. The article points out that with only a year left in his term, Powell is facing the most complex challenge of his career: on the one hand, the threat of tariffs that could lead to stagflation, and on the other, the relentless political pressure from the Trump administration. More worryingly, his 18 policy committee colleagues are heading in vastly different directions. This means that Powell needs to defend the Fed's independence in the trade war and potential policy intervention, while maintaining balance among the different voices within. Timiraos compares Powell to a "duck": outwardly calm, neither a dove nor a hawk, but constantly paddling in the murky waters below.

Threat of Stagflation Intensifies

Timiraos's article begins by highlighting Powell's core dilemma: the threat of economic stagflation. The article points out that the rise in tariffs due to the trade war could push up prices, while economic growth could stagnate or slow as a result. This forces Fed officials to make a difficult choice between lowering interest rates to stimulate demand or maintaining high rates to curb inflation. The article cites the views of Dario Perkins, an economist at GlobalData TS Lombard, who said: "If the Fed cuts rates now, it's probably because the economy is looking worse." This statement accurately summarizes Powell's dilemma - he must find a balance between controlling inflation and maintaining economic growth, or the Fed will be caught in a no-win situation. Timiraos states that the risk of inflation reigniting is mounting: reduced immigration and government austerity measures could affect labor supply and demand, while significantly raising tariffs could create the "worst combination of economic stagnation and rising prices." The article also specifically mentions the Fed's missteps in addressing post-pandemic inflation in 2021. At the time, the Fed believed the price increases were "temporary" and was forced to tighten policy and raise rates sharply. This "cautionary tale" has made Powell and his colleagues more cautious in policymaking and more focused on the impact of the trade war on inflation. Timiraos believes that now, the new Treasury Secretary's suggestion that the Fed should view tariff-induced inflation as a temporary phenomenon may be a dangerous recommendation.

Trump's "Meddling" Threatens Independence

Compared to Trump's first term, the Fed now faces greater political pressure. Although the Trump administration has stated that it will not interfere with interest rate policy, its actions seem to have indirectly threatened the Fed's independence. According to the article, Trump's former National Economic Council chairman, Kevin Hassett, criticized the Fed's handling of the inflation issue in an interview. A recent executive order issued by the Trump administration grants the government the power to oversee the Fed's regulatory agenda, although it exempts monetary policy, the implementation remains ambiguous and indirectly limits the Fed's independence. More worryingly, Trump's Justice Department is seeking to overturn a 1935 legal precedent that protects the independence of regulatory agencies. If this precedent is overturned, it will greatly weaken the Fed's autonomy and make it more susceptible to political interference.

"Bedfellows with Different Dreams" Among Colleagues

The challenges facing Powell come not only from external sources but also from within. Timiraos points out that the positions of FOMC members are becoming polarized, with some former "doves" turning "hawks" and vice versa. The article specifically mentions two Fed governors: Waller and Bowman. Waller, seen by some as a potential successor to Powell, has recently taken on a more "dovish" stance on rate cuts. In December last year, Waller used a Trump-style metaphor to describe the Fed's fight against inflation: "I feel like an MMA fighter, got inflation in a chokehold, waiting for it to tap out." Bowman, on the other hand, was nominated for the Fed's vice chair of supervision position after Trump took office, and she has publicly opposed the Fed's rate cut policy. These different positions and political aspirations make it more challenging for Powell to formulate policies and increase the difficulty of coordination within the Fed.