Not the First Time: Trump & Powell Join a Long Line of Fed Showdowns

Tensions are rising between President Trump and Fed Chair Jay Powell—but this isn’t the first time a president has clashed with the Federal Reserve. In this episode, David Nelson breaks down Powell’s sharp remarks, Trump’s push for rate cuts, and the long history of political pressure on the Fed—from LBJ to Nixon to Reagan. Plus, what it all means for markets, investors, and the road ahead.

Disclosure: "At the time of this article I currently hold shares in some of the companies mentioned as part of investment portfolios in funds I manage for Belpointe. Additionally, I may discuss other securities that are under consideration for future investment; however, discussing these securities is not a recommendation to buy, sell, or hold. My mention of these securities reflects my personal opinion and analysis at this moment and may change without notice. Please remember that all investments involve risks, including the possible loss of principal."

Transcript

0:03

Make no mistake, there is no love lost between President Trump and Fed Chair Jay Powell. This goes all the way back to Trump's first term. It became clear early on that he regretted his decision to put him in charge of the Federal Reserve. Here we are in 2025 and the rhetoric getting pretty nasty. The president is all but demanding that they cut rates since the end of his term can't come fast enough. He points to the ECB cutting rates. He talks about gas, eggs and other essentials all down in price. Now, Powell normally plays it cool, but on the inside, he's on fire. And he made that clear with some of his comments on Wednesday in an interview with the Economic Club of Chicago. His prepared statement sent markets reeling and each response to a question sent markets another leg lower. It was almost like he was trying to crack the market wide open, sending a clear message to Trump. Don't mess with me. But there were a number of key statements that were unusual for a Fed chair like this one. The Fed might have limited flexibility to respond, even hinting they may not be able to support one side of the dual mandate employment focusing just on inflation. That alone was good for a couple of hundred points in the Dow. Now, Powell, he puts all the blame on tariffs, sending a message it would tie his hands. Look, I understand what the president's trying to do. He's trying to upend a trading system put in place 80 years ago that he believes is outdated. I'm on record saying I want a new Bretton Woods agreement to fix those problems. But I've also called out the president on execution of policy, saying he should listen more to the adult in the room. Treasury Secretary Scott Pleasant. But I'll also point out that our inflation problems did not start on liberation Day. We wouldn't be having this discussion of Powell and company had done their job in 2021, when almost every informed economist was screaming that inflation coming out of the pandemic was not transitory. I, for one, I long for the Greenspan days. Alan Greenspan, of course, was appointed by President Reagan. He frustrated everyone with his cryptic Fed speak, but it didn't matter because none of us knew what he was talking about. In fact, the only indicator we had was the briefcase indicator. We look at the TV screen, look at the size of his briefcase, and try to determine from that whether or not the Fed was going to hike or lower rates. While all the bluster between Trump and Powell seems out of whack and talking, heads are shocked, saying this intimidation by a president has never happened before. One quick walk down memory lane shows lots of presidents had run ins with a Fed chair. One time it got physical and almost came to blows. Welcome to the Money Runner. I'm David Nelson and this before I take you to the market action last week, I want to discuss other Fed chair confrontations and how it played out. LBJ. Lyndon Baines Johnson. By late 1965, inflation was beginning to creep up. Massive deficit spending, largely because of Johnson's ambitious Great Society social programs and the rising costs of the Vietnam War were forcing the Fed's hand. In December that year against strong resistance from the White House. The Fed increased the discount rate from 4 to 4 and a half percent. If you think Trump loses it, Johnson went nuts. He summoned William Martin, then fed chair to his ranch in Johnson City, Texas. Multiple eyewitness accounts and Martin's own recollections described the meeting as highly confrontational. Johnson said, You are betraying the country. He used his size to intimidate people, though there were no credible reports of blows thrown. Martin's own account, along with journalist Sebastian MALLABY, said LBJ pushed him around the room yelling, Boys are dying in Vietnam and Bill Martin doesn't care. Well, Martin stood his ground. Johnson did not fire him, but the incident left a deep scar, not unlike what we are seeing between Trump and Powell. And most of you know, I'm no fan of Powell and believe he has been a poor Fed chair. But my hope is that both can find a way to work together for another 13 months when palace term ends. There were other confrontations with other presidents. Nixon Burns comes to mind in the seventies. Nixon pressured Burns relentlessly to to adopt an expansionary monetary policy in the run up to his election. Reagan and Fed Chair Paul Volcker, 1981 287. Coming into Reagan's reelection, it is believed Baker Reagan's chief of staff, said the Volcker that the president is ordering you not to raise interest rates before the election. Volcker was stunned, but apparently had no intention of raising rates because he felt inflation was in check at that time. Of course, Reagan didn't reappoint him again and nominated Alan Greenspan as the next Fed chair. I wish the controversy between the president and Jay Powell were the only thing investors had to worry about. But sadly, that is just not the case. The truth is, the cracks in the markets started developing as early as late summer last year. The number of gaffes lower on bad news started to happen more frequently. The unwind of the and carry trade deep seek moment all in a market that is expensive, especially in a backdrop of rates that are well above what economists would call neutral. Year to date, it has clearly been a challenge. You can see that in the style charts on your screen. Right now, the S&P 500 is suffering from heavy concentration in a handful of names. The top ten stocks by market cap now represent about 38% of the market. So if they are doing well, nothing works. This tape continues to be defensive. Low volatility is one of the few styles up on the year. Even dividend stocks, which have largely outperformed, are down modestly year to date. Other indicators we pointed out have been a big concern. Until recently, rates were rising, credit spreads were widening, and the dollar was falling and gold was hitting all time highs, up 26% year to date. All a signal that the financial plumbing was under stress. The good news is that about 40% of the S&P 500 earnings are offshore. So a weaker dollar can help boost sales and possibly offset a corresponding tariff. Other good news is that some indicators show signs of a bottoming process. Over the last 50 years when the percentage of stocks above their 200 day moving average falls to about 12%. A bottoming process occurs and we hit 14% just a couple of weeks ago. The bad news? Fund flows are in the wrong direction. U.S. investors are still putting money into equity ETFs, but foreign investors are on a buyer's strike. And when you get into bond ETFs, the picture is even worse. Here, foreigners are net sellers of U.S. bonds, in part because on a relative basis, our currency is so weak. Now, while U.S. bonds, year to date are in the green, international bond funds that are not currency hedged are screaming. These funds won't avoid for years. But suddenly, with the U.S. dollar falling, they are leading the fixed income parade. It is very early in the earnings season, so it's hard to read too much into the results. However, I think a pattern will emerge. Companies that fail to deliver will use the tariff, get out of jail free card to explain away any fall off in performance. You can see from this Bloomberg data the number of times tariffs are mentioned in earnings calls. That's been building all year. I'll take it a step further. There is no upside for a CEO to give guidance. Only the strongest companies are likely to. Most won't give any guidance at all. And some may even take the opportunity to die down using tariffs as an excuse to lower the bar, making it easier to beat earnings later in the year. Cynical yet. But if history is any guide, I'm dead on right? For now. The biggest challenge for our markets is to get above what I call the Liberation Day Rubicon crossing 5700 is critical for the market that is above the closing level of the S&P 500. When Trump announced reciprocal tariffs, I believed then and only then will investors start to go. FOMO fear of missing out. In other words, move from net sellers on rallies to buyers on pullbacks. Well, that's it for this week. Don't forget to learn more about yours truly or the money runner. Go to my substack site. dcnelson123@substack.com. I'm David Nelson and this is The Money Runner.