Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 614

Trump vs Powell: Who will blink first?

Futures markets suggest we’ll get just one rate cut from the U.S. Federal Reserve this year. That’s not surprising: The latest U.S. consumer and producer price inflation data has been relatively cool, and Fed Chair Jerome Powell has been sounding hawkish. He has even hinted at reconsidering the treatment of the 2% inflation target as a longer-term average, the one thing currently allowing some tolerance of above-target data.

President Donald Trump is not happy. After criticising “Too-Late” Powell through much of April, the president had to clarify that he isn’t going to remove him from office. Nonetheless, he still thinks the Fed should “lower rates like Europe and China have done” (the European Central Bank cut on April 17, the People’s Bank of China cut last week), and that Powell is a “total stiff.”

The name-calling is revealing, and not just because it underlines the Trump administration’s unconventional ways. The office of U.S. president is endowed with broad executive powers – and this president is testing even these limits. By contrast, numerous Fed officials, many with voting power, have been lining up to explain why it was best to “wait and see” before cutting rates. The Fed chair – hemmed in by process, meticulously chosen words and consensus decision-making – is always going to look like an unresponsive “stiff” to President Trump.

At the top of the U.S. fiscal and monetary authorities, investors face an unprecedented clash of leadership styles.

Process and transparency

When Paul Volcker was tackling runaway inflation in the early 1980s, process and consensus was not the name of the game. His shock therapy – raising rates to 20% and inducing recession – was decisive, unbending and unpopular.

His successor as Fed Chair, Alan Greenspan, began to introduce the elements of process and transparency that we know today, such as published minutes, interest-rate projections and qualitative forward guidance. More recently, Ben Bernanke’s Fed formalized the 2% inflation target. When rates were stuck at zero after the Global Financial Crisis and during the COVID-19 pandemic, the process and public commentary effectively became the central bank’s policy.

In Greenspan’s view, process, consensus and transparency would help protect the independence that Volcker had to fight for, but they would also give capital allocators and investors more certainty, taming the violent cycles that Volcker had to deal with, bringing down the cost of capital and making the economy and its markets more efficient.

Decisive unconventional action, in collaboration with other federal agencies and other central banks around the world, is still possible in a crisis. But the central bank’s day-to-day activity is now deliberate, consensual and jealously independent – and, as an inevitable result, somewhat reactive. “Too late,” if you take the view of President Trump. Predictable and reassuring, if you’re more technocratic.

Move fast and break things

The Trump administration is more ‘tech bro’ than technocratic. It likes to move fast and break things in pursuit of its strategic aims.

In economic terms, those aims might be summed up in Robert Lighthizer’s 2023 book, No Trade Is Free: Changing Course, Taking on China and Helping America’s Workers. Lighthizer sees the post-World War II era as an anomaly and wants the U.S. to embrace the historical use of trade policy and tariffs: protecting and developing certain industries; reciprocating and retaliating against other countries’ levies; and raising revenue. In his thoughts about China, he also advocates using trade policy to advance geopolitical ends.

Because it is so unconventional, this strategy necessitates a concentration of trade policy in the executive. It also bypasses the multilateral and technocratic trade architecture built over the past 80 years, envisaging bilateral negotiations undertaken and overseen at the highest administrative levels.

In our view, investors should take care not to mistake the chaos of the past 125 days as a lack of strategy. Just as President Trump’s first term effected a paradigm shift in the way other political parties and other countries thought about China, we think this term is likely to leave us with more bilateral, more protectionist international relations, regardless of who wins the next U.S. elections.

The chaos comes not due to lack of strategy, but due to the administration’s tactic of testing practical limits in pursuit of its strategy. In crude terms, it is figuring out what is possible as it goes – as opposed to assuming what is possible based on some informed consensus and adapting the strategy to fit.

Bubbles

Whereas Powell’s leadership style is designed to minimize the cost of capital, Trump’s style seems to raise it, in the form of higher stock market volatility, wider credit spreads, climbing Treasury yields and a rating agency downgrade.

As investors, however, we don’t automatically side with the Powell style. Leading by consensus at central banks has arguably resulted in reflexively low real interest rates and artificially low volatility in both financial markets and credit cycles. That, in turn, has allowed successive bubbles to be inflated in technology stocks, U.S. real estate and government debt. A little more mystery around Fed policymaking might have mitigated or even prevented those bubbles.

Should that be how we think about the Trump administration’s tactics? Recent policy uncertainty has made U.S. government debt less affordable and the U.S. dollar weaker. This could be seen as needlessly raising the cost of capital. But it could also help to deflate a multidecade bubble in debt-fueled U.S. consumption and force a return to a more sustainable manufacturing- and exports-based economy.

While that explanation fits with the apparent long-term strategy, it doesn’t follow that these are sensible tactics. Uncertainty and risk are healthy in small doses. Decisiveness can be powerful when tempered by informed consideration. But sheer disruptiveness could, in itself, lead investors to demand higher risk premia than are necessary to achieve the strategic aims.

President Trump and Chair Powell sit at opposite policymaking poles, and both could take a lesson from the other—not least because, ultimately, the fiscal and monetary authorities need to work together.

 

Brad Tank is Co-Chief Investment Officer and Global Head of Fixed Income at Neuberger Berman, a sponsor of Firstlinks. This material is provided for general informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. You should consult your accountant, tax adviser and/or attorney for advice concerning your own circumstances.

For more articles and papers from Neuberger Berman, click here.

 

  •   4 June 2025
  • 2
  •      
  •   

RELATED ARTICLES

Five simple reasons why Australian cash rates are highest

Central banks need higher inflation targets

Why economic forecasts are rarely right (but we still need them)

banner

Most viewed in recent weeks

Indexation implications – key changes to 2026/27 super thresholds

Stay on top of the latest changes to superannuation rates and thresholds for 2026, including increases to transfer balance cap, concessional contributions cap, and non-concessional contributions cap.

The refinery problem: A different kind of energy crisis in 2026

The Strait of Hormuz closure due to US-Iran conflict severely disrupted global energy supply chains. While various emergency measures mitigated the crude impact, the refined product market faces unprecedented stress.

The missing 30%: how LIC returns are understated, and why it matters

The perceived underperformance of LICs compared to ETFs is due to existing comparison data excluding crucial information, highlighting the need for proper assessment and transparent reporting.

Little‑known government scheme can help retirees tap into $3 trillion of housing wealth

The Home Equity Access Scheme in Australia allows older homeowners to tap into their home equity for retirement income, yet remains underused due to lack of awareness and its perceived complexity.

Origins of the mislabeled capital gains tax ‘discount’

Debate over the CGT discount is intensifying amid concerns about intergenerational equity and housing affordability. This analysis shows that the 'discount' does not necessarily favor property investors.

Div 296 may mean your estate pays tax on assets your beneficiaries never receive

The new super tax, applying from 1 July, introduces more than just a higher rate on large balances. It brings into focus a misalignment between where wealth sits and where the tax on that wealth ultimately falls.

Latest Updates

The ultimate superannuation EOFY checklist 2026

Here is a checklist of 28 important issues you should address before June 30 to ensure your SMSF or other super fund is in order and that you are making the most of the strategies available.

Retirement

Two months into retirement

A retirement researcher's take on retirement and her focus on each of her six resource buckets to stay engaged during the transition and beyond.

Superannuation

Markets have always delivered for super fund members. What if they don’t?

What happens if market resilience in the face of ongoing geopolitical tensions ends? Potential decade-long market weakness shows the need for contingency planning.

Retirement

We tend to spend less in retirement …

Studies show that a drop in expenditure during retirement leads to a happier retirement. But when costs ramp up again later in life, it's a guaranteed income that makes spending more hurt less.

Shares

Can you value a share just using dividends?

A cow for her milk, a stock for her dividends. Investors are too quick to dismiss this valuation technique. 

Property

The 25-year property trust default is being questioned

The 33% CGT discount rate being floated isn’t random. It sits at the structural break-even between trust and company for the multi-property cohort. That’s driving the conversation we’re hearing now.

Investment strategies

Are active managers bringing a knife to a gunfight?

How passive investing has permanently changed market structure — and why sophisticated tools are now the price of survival.

Sponsors

Alliances

© 2026 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.