US PRESIDENT Donald J. Trump has acknowledged the intense pressure he’s laying on the US Federal Reserve to lower interest rates is, in fact, making it harder for the central bank to do just that.

But he may also be sabotaging the person he picks to succeed Jerome Powell, whose term as chairman expires next May.

By pledging to pick “somebody that wants to cut rates,” Mr. Trump has potentially undermined the next chairman’s standing even before they’re selected. The public and investors will likely question whether the nominee will safeguard the central bank’s independence or bow to Mr. Trump’s demands.

“People will wonder what sort of promises or implicit promises or winks or nods may have gone on in order to get the nomination,” said Jon Faust, a fellow at the Center for Financial Economics at Johns Hopkins University and a former special adviser to Mr. Powell. “I think that’s very bad for the next Fed chair. I think that’s very bad for the credibility of the Fed.”

Mr. Trump has pointed to recent tame inflation readings and lower policy rates in other countries in his calls for the Fed to reduce borrowing costs, while maintaining the central bank can raise interest rates should inflation re-accelerate. He’s also argued the Fed — which was late to hike interest rates to counter the inflation surge that followed the COVID-19 pandemic — has often waited too long to adjust its policy.

In an e-mailed statement, White House spokesman Kush Desai said it was Mr. Trump’s First Amendment right “to voice his concern about flawed policymaking, and that includes monetary policy that’s holding our country’s economic resurgence back.”

Mr. Powell hasn’t responded directly to Mr. Trump’s badgering. Instead, he has emphasized that policymakers are squarely focused on doing what they judge to be in the best interest of the economy and within their legal mandate.

“I have a little more than 10 months left on my term as chair and all I want, and all anybody at the Fed wants, is to deliver an economy that has price stability, maximum employment, financial stability,” Mr. Powell said on July 1.

Right now, Mr. Powell and his colleagues have decided that means holding off on rate cuts. They want more clarity on how Mr. Trump’s tariffs and other policies will affect inflation and employment. That’s stoked Mr. Trump’s ire, and others in his administration have ramped up the attacks in recent days

“I fully understand that my strong criticism of him makes it more difficult for him to do what he should be doing, lowering Rates,” Mr. Trump said of Powell on social media last month.

PAINFUL LESSONS
In recent decades, elected officials and Fed policymakers alike have aimed to insulate monetary policy from political interference. That’s a result of painful lessons learned when central bankers yielded to outside bullying.

Paul Volcker, who became Fed chairman in 1979, is remembered for waging a dogged fight to quell an inflation problem that many believe went unchecked because the Fed gave in to pressure from President Richard Nixon. Economic historians credit Volcker with reestablishing the Fed’s credibility on price stability and setting the stage for a long period of low inflation.

That lesson, and similar examples from around the globe, have led researchers to broadly agree that economies perform better when central banks set rates independently.

“If you believe that the central bank is going to make decisions that even marginally tilt more toward political pressures, you’re going to expect higher inflation, more volatility in the macroeconomy,” said Julia Coronado, founder of research firm MacroPolicy Perspectives. “All of that has a price in the bond market and in financial markets generally.”

Coronado said she expects the next Fed leader to be less invested in the central bank’s independence than the last few chairmen.

“It’s not going to be some arsonist that comes in and lights the institution on fire. I think it’ll be more incremental, but still meaningful,” she said. “At the margin, they’re going to try to guide that committee to easier policy because that will be the political pressure and it will have some impact.”

THE CANDIDATES
Mr. Trump has said he has three or four people in mind to succeed Powell and his pick will come “very soon.”

“If I think somebody’s going to keep the rates where they are or whatever, I’m not going to put them in. I’m going to put somebody that wants to cut rates,” he said last month.

Desai, the White House spokesman, said the president “will continue to nominate the most qualified individuals who can best serve the American people.”

Treasury Secretary Scott Bessent — who is reportedly among those under consideration — said on June 30 the administration will work on naming a successor over the coming weeks and months.

Other candidates said to be in contention include Kevin Warsh, a former Fed governor, and a current governor, Christopher Waller. Kevin Hassett, the White House’s National Economic Council director, and former World Bank President David Malpass are also said to be in the mix.

Mr. Bessent, Mr. Hassett and Mr. Malpass have echoed Mr. Trump’s view that the Fed should already be cutting rates. Waller, citing recent economic data, has said a rate cut could be appropriate as soon as this month. He has also touted the importance of central bank independence.

While in wait-and-see mode for now, most Fed officials still expect the central bank will cut rates at least once this year. And some analysts have noted economic conditions could evolve in a way that makes the rate cuts Mr. Trump seeks a less contentious policy choice even before a new chairman takes over.

In addition, checks on the Fed chief will remain regardless of whom Mr. Trump picks. The chairman is just one of 19 policymakers on the Federal Open Market Committee, and one of 12 who vote on interest-rate decisions.

The next chairman could still be viewed as having credibility if they offer a reasonable intellectual framework for lowering rates, said Derek Tang, an economist at LHMeyer/Monetary Policy Analytics in Washington. He said he’ll be watching how investors’ expectations for future inflation react once Mr. Trump names a pick as an indication of whether markets view the choice as credible.

“The candidate has to thread a needle to be pleasing enough to Trump,” Mr. Tang said. “But then at the same time be able to convince the market they’re going to stand up for Fed independence and defend the inflation mandate. They have to do both things at once, which is hard.” — Bloomberg News