【Text by Jin Zhong, Observer Columnist】

Trump has finally "waited" for the Federal Reserve to cut interest rates. On September 17, the Federal Reserve cut rates by 0.25%, which is the first rate cut of his second presidential term.

Since taking office at the beginning of this year, Trump has repeatedly publicly demanded the current Federal Reserve Chair Powell to cut interest rates on social media. In recent months, he has even applied strong pressure. When he realized that directly firing Powell would cause significant legal disputes and market turbulence, he instead instructed his subordinates to look for any mistakes or evidence against Powell's side, such as the overspending during the renovation of the Federal Reserve building under Powell's tenure.

Trump also accused Federal Reserve Board member Lisa Cook of providing false information in her mortgage loan application and used this as an excuse to fire her. Subsequently, Cook sued Trump for overstepping his authority. In the current federal court ruling, Cook still retains her position, but the case has been taken to the Supreme Court.

Trump met with Powell during his visit to the Federal Reserve renovation project. Visual China

After this rate cut decision, members of the Federal Reserve's monetary policy meeting currently expect two more rate cuts of 0.25% each in 2025, and only one rate cut in 2026.

For financial markets, the news of the rate cut had already been widely known several days ago, so there was no significant fluctuation in the financial markets after the rate cut.

Certainly, the current pace of rate cuts is far from enough for Trump. Before the Federal Reserve's monetary policy meeting, Trump had consistently advocated a 0.5% rate cut. He appointed Stephen Miran, a new Federal Reserve board member, who was the only member at this monetary policy meeting who voted for a 0.5% rate cut. After the meeting, Trump also proposed to the Supreme Court that during the Supreme Court's hearing of the Lisa Cook dismissal case, Cook's position and voting rights at the Federal Reserve's monetary policy meeting should be suspended.

"Mar-a-Lago Agreement" architect Stephen Miran appointed as a Federal Reserve Board member. Bloomberg screenshot

Trump's intense focus on securing Lisa Cook's seat on the Federal Reserve Board has its own reasons.

The current members of the Federal Reserve's monetary policy meeting have 12 people. Among them, seven are members of the Federal Reserve Board, including the chair. The other five are presidents of the 12 regional Federal Reserve Banks, with the president of the New York Federal Reserve Bank being a permanent member of the meeting, while the other four seats rotate among the remaining 11 regional bank presidents.

We previously introduced in our articles that the current Federal Reserve Chair Powell's term will end in May 2026. Although Powell was nominated by Trump, there are significant political differences between him and Trump, which is the main reason why Trump has tried so hard to get rid of him. After Powell leaves the chair in May 2026, his board seat will remain for another two years, ending in January 2028.

Among the current Federal Reserve Board members, there are two others who were nominated by Trump during his first term — Michelle W. Bowman and Christopher J. Waller. Adding Stephen Miran, who was appointed just before the monetary policy meeting, Trump currently holds three seats on the board. He only needs one more seat to gain majority control of the board. If he can successfully dismiss Lisa Cook, he will have the opportunity to appoint another Federal Reserve Board member, thus gaining control of the majority of the board seats.

If Trump gains majority control of the Federal Reserve Board, he will have the opportunity to influence the selection of the 12 regional Federal Reserve Bank presidents.

All 12 regional Federal Reserve Bank presidents will have their terms end in February 2026. Whether the current presidents seek reappointment or choose new candidates, the final appointments must be approved by the Federal Reserve Board to take effect. In the past few decades, once the regional banks submitted their presidential candidates, the board usually just went through the procedure as a formality without ever rejecting a candidate.

However, if Trump actually gains majority control of the board, he could break this tradition and, after February 2026, use the board to reject candidates who do not meet his preferences, forcing the regional banks to appoint individuals aligned with his political faction as presidents.

In this way, Trump would completely control personnel changes in the Federal Reserve decision-making layer, gain absolute majority voting power in the Federal Reserve's monetary policy meetings, and fully control the Federal Reserve's monetary policy.

If this scenario becomes a reality, its impact will go far beyond the results of a few monetary policy meetings. The Federal Reserve's remaining independence will be completely lost, and monetary policy may become entirely a political tool in Trump's hands.

It can be imagined that, at that time, short-term interest rates in the United States will drop significantly, and the Federal Reserve will likely restart monetary easing policies. With the Federal Reserve purchasing large amounts of Treasury bonds, long-term interest rates will also fall. The wave of large-scale debt refinancing in the U.S. starting in the coming months will likely pass smoothly with the increase in the supply of market funds. Of course, at that time, the dollar will also depreciate significantly.

Meanwhile, the current macroeconomic situation in the U.S., like the past few years, is extremely polarized.

The top 10% of middle and high-income Americans, especially those with financial assets, have seen their assets grow rapidly due to the continuously rising stock market. Their consumption remains strong and accounts for nearly half of the total consumption in the U.S.

On the other hand, the remaining 90% of ordinary Americans have not benefited from the U.S. asset bubble and continue to face squeezing living space due to high inflation. According to the financial reports of some major American companies, many middle-class consumers have started to downgrade their consumption, shifting to stores typically frequented by lower-income groups, such as Walmart and McDonald's. Those who previously often dined at McDonald's have further downgraded, reducing their dining-out frequency and cooking at home to save money.

Under the backdrop of the trade war, U.S. inflation has started to rise again. Powell himself said that he originally planned to cut interest rates in the first half of the year, but due to the sharp increase in tariffs, he had to delay the rate cut until September.

At the same time, Trump's methods of expelling undocumented immigrants have become increasingly extreme. Even hundreds of technical workers sent by South Korean companies to help build factories in the U.S. were publicly arrested and detained. Let alone the lowest-level South American immigrants who provide cheap services and labor. The latest public data shows that the deportation campaign has reduced the supply of about a million low-level laborers, affecting industries such as manufacturing, agriculture, construction, hotels, and catering. The reduction of these laborers has also pushed up the prices of essential goods and daily services.

U.S. Customs and Border Protection raids on South Korean factories in the U.S., targeting undocumented immigrants, detaining nearly 500 people.

Additionally, there is an event that will push up inflation before the end of the year: Since Trump recently passed a tax cut plan that will reduce government funding for healthcare, a large number of Americans worried about losing their health insurance have rushed to see doctors while their insurance is still valid. Starting from the second quarter, health insurance companies have generally experienced significant increases in insurance payouts, leading to operating losses. It is expected that these losses will continue until the end of the year.

Health insurance plans are renewed annually. As the end of the year approaches, health insurance companies will announce 2026 insurance policies and premium changes. It is certain that all health insurance companies will significantly increase premiums or reduce insurance payout levels to offset losses. Therefore, next year's increase in health insurance premiums and medical expenses will also drive up inflation.

Trump's own healthcare policies are self-contradictory. On one hand, he calls on pharmaceutical companies to drastically reduce drug prices on social media, but on the other hand, he threatens to impose tariffs of over 100% on drug imports and raw materials. If these drug tariffs are implemented, drug prices will inevitably rise.

The previous example under Biden's administration is still fresh in memory. Even if the stock market rises, the decline in living standards caused by inflation will definitely cost the ruling party a heavy political price.

Looking ahead to 2026, it is expected that the upcoming large-scale monetary easing policy by the Federal Reserve will further widen the gap between the rich and the poor in the U.S. The initial rise in the stock market will not reduce the resentment and dissatisfaction of ordinary people.

As the 2026 midterm elections approach, increased public grievances and political risks will lead to the risk of a large-scale adjustment in the stock market at the peak of the bubble. Of course, Trump himself won the 2024 election by exploiting this public resentment, and he naturally knows the dangers involved. Therefore, in addition to using American political rules to obtain as much internal advantage as possible — such as redrawing electoral districts in various states, using legal means to attack the Democratic Party's various peripheral organizations and fundraising institutions, using regulatory agencies to control the acquisition of various online and traditional media, and removing programs that support the Democratic Party — he may also transfer internal conflicts externally — for example, implementing large-scale xenophobia or inciting conflicts abroad.

For China, the Federal Reserve's rate cut and the potential large-scale monetary easing in the future will first reduce the pressure of domestic capital outflows. The booming U.S. financial market in the coming months will also boost global financial markets. However, when the time approaches the mid-term elections next year, the international situation changes caused by U.S. political risks may be transmitted to financial markets around the world. It is believed that compared to next year, the ups and downs of 2025 will not be anything.

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