Trump already wants to cut interest rates with secret ‘shadow Fed’

Since Donald Trump entered the White House, things have not been going smoothly between him and the American central bank, the Federal Reserve. In particular, Jerome Powell, the chairman of the Federal Reserve (Fed), is Trump’s favorite bully. Trump wants to lower interest rates as quickly as possible, but Powell is opting for a cautious approach.

President Trump is now said to be working behind the scenes on an unprecedented intervention in American monetary policy: the establishment of a so-called shadow Fed that should neutralize the influence of the current chairman.

Trump wants to influence markets before his new Fed chairman takes office

This is what Mario Nawfal, a prominent market follower, claims on X. With this, the White House is trying to steer the financial markets towards lower interest rates months before the formal change of power within the Federal Reserve.

Trump will complete talks with candidates for the central bank chairmanship in the coming weeks, according to a former Fed official. Today, Treasury Secretary Scott Bessent said there is a “very good chance” that Trump will announce the next chairman before Christmas.

The appointment is expected to be announced soon after Christmas. The new chairman would normally only gain influence once Powell’s current term expires (on May 15, 2026). Not if it’s up to Trump. The president wants this person to almost immediately be given a public role as “shadow” chairman.

This mechanism should ensure that any statement by Powell is immediately publicly countered by the newly appointed candidate. Because financial markets react strongly to future policy expectations, the shadow Fed would, according to the same source, “reduce the influence of the current chairman to complete powerlessness.” In the bond market in particular, long-term interest rates could fall as early as January, before official policy changes take place.

According to the sources, this strategy revolves around so-called “yield curve jawboning”: influencing the yield curve through communication. By appointing a credible future Fed leader who favors much lower rates, markets can price that direction early, even if the current chairman does not yet change policy.

As mentioned, Trump has been targeting Powell for some time now. He minces no words and leaves no doubt whatsoever about his attitude and opinion about the current Fed chairman. During a recent speech he said: “Jerome Powell has real mental problems. I want him fired.” He added, “The rates are too high, Scott. And if you don’t fix it soon, I’m going to fire you, okay?” The president also criticized Powell’s spending: “He should be indicted for spending $4 billion on a small building.”

The White House wants interest rates to be “dramatically lower” within six months, a statement that, according to the same source, “almost reveals that the market will soon receive a new signal.” The shadow Fed must reinforce this message by making an alternative policy line visible.

Broad economic context fuels drive for lower interest rates

The background to the strategy lies in the extensive American and global debt burden. The source behind the shadow Fed claimed that the actual US debt is around $130 trillion when corporate loans, consumer debt and unaffordable future obligations are included. Globally, this would amount to approximately $600 trillion in debt and obligations. The official US national debt is over $38 trillion.

According to critics of the current policy, this mountain of debt is impossible to sustain with high interest rates. Lower interest rates, combined with inflation, make existing debt relatively smaller. This creates room for economic recovery without heavy cuts. The shadow Fed would therefore not only be intended to reassure the financial markets, but also to reduce the economic pressure on households and companies.

The volatility in financial markets increases the urgency for the White House. The strong price movements in the technology sector and the vulnerability of the current AI rally create uncertainty. According to the source, the crypto market also “shows on a daily basis how fragile the current risk appetite is”.

During periods of stress, virtually every risky asset falls simultaneously, which Trump sees as a risk to economic stability and to national sentiment. The president sees strong markets as an important political signal.

Possible consequences for the housing market, shares and crypto

If the shadow Fed succeeds in influencing the yield curve, this could have several effects on the economy. Lower mortgage rates can lead to refinancing waves, cheaper loans and more liquidity in the market. The source described the goal as “a scenario where money flows back into stocks, crypto and other risk assets.”

In the crypto market, this can result in higher trading volumes and more capital inflows. Historically, cryptocurrencies such as Bitcoin (BTC) and Ethereum (ETH) benefit from periods of lower interest rates as investors are more likely to take on risk. At the same time, the market can react volatile to unexpected policy changes, especially when two policies (Powell and the shadow chairman) coexist.

Critics emphasize that the Federal Reserve should function independently. According to them, installing a shadow Fed could lead to conflicting signals, uncertainty in the bond market and higher volatility. According to one analyst, the situation can be compared to two captains holding the wheel at the same time, while the market tries to guess who will turn first.

For the time being, we are still waiting for official confirmation. The announcement of the new Fed candidate is expected to follow within a few weeks. This means that the shadow Fed could potentially influence the financial market as early as January.