How Trump’s Pressure on the Fed Could Undermine Confidence in Its Next Chair

Summary

WSJ What’s News: How Trump’s Pressure on the Fed Could Undermine Confidence in Its Next Chair

Release Date: April 25, 2025

The Wall Street Journal's "What’s News" episode delves into a spectrum of pressing economic and political issues, with a focal point on President Donald Trump's influence on the Federal Reserve and its potential ramifications. Hosted by Pierre Biename, the episode navigates through declining consumer confidence, market dynamics, international trade tensions, judicial controversies, and evolving employment trends.

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1. Declining Consumer Sentiment in the U.S.

At the onset of the episode, Pierre Biename highlights a troubling trend in American consumer sentiment. Citing the University of Michigan's latest consumer sentiment index, Biename reports a significant decline for April, with the index dropping to 52.2 from 57 in March. This marks the lowest reading since 1981, indicating widespread economic pessimism among U.S. households.

Key Insights:

• Inflation Expectations: Consumers anticipate a 6.5% surge in prices over the next year, up from 5% in March, reflecting heightened anxiety about rising living costs.
• Economic Outlook: The pervasive uncertainty stems from concerns over job security, income stability, and inflation, laying a foundation for potential stagflation.

Expert Commentary: Harriet Tory, the Wall Street Journal’s economics correspondent, provides an in-depth analysis of the factors contributing to the downturn in consumer sentiment.

“Consumers are generally feeling pretty skittish about the economy... there's a great deal of uncertainty about the direction of the economy,” Tory explains at [01:55], emphasizing worries about jobs, incomes, and inflation.

Tory further elaborates on the polarization of sentiment along partisan lines:

“In April we saw sentiment drop among Democrats to its lowest on record, whereas among Republicans it picked up slightly and expectations for the future they dropped across all parties,” she notes at [02:54].

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2. Market Developments and Corporate Earnings

The episode transitions to the latest market movements and corporate performance:

• Colgate-Palmolive Earnings Report: The consumer goods giant reported a downturn in Q1 earnings, attributing lower sales of toothpaste and soap to consumer uncertainty. Additionally, the company revised its full-year guidance downward due to $200 million in expected tariff costs.

• U.S. Stock Performance: U.S. stocks closed mostly higher for the week, with the Nasdaq Composite rising 1.25% and the S&P 500 increasing by 0.75%. However, analysts remain cautious, warning that Trump's tariff policies might erode U.S. credibility among international investors.

• China’s Economic Response: In retaliation to U.S. tariffs, China announced measures to bolster its economy, including interest rate cuts and reduced reserve requirements for banks. The Chinese Communist Party’s Politburo stated intentions to support companies affected by tariffs through enhanced unemployment insurance and maintained commitment to a stable capital market.

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3. Trump’s Pressure on the Federal Reserve

A central theme of the episode is President Trump's ongoing pressure on Federal Reserve Chair Jerome Powell and the broader implications for the Fed’s future leadership.

Discussion Highlights:

• Federal Reserve Independence: Harriet Tory underscores the importance of the Fed’s autonomy in setting interest rates based on economic indicators rather than political influence.

“The Federal Reserve has been seen as independent... if you have people beginning to wonder why the Fed is setting interest rates, is it because of politics or is it because of how they see the economy,” Tory remarks at [06:33].

• Impact on Investor Confidence: Tory warns that political meddling could lead investors to doubt the motives behind Federal Reserve decisions, potentially destabilizing confidence in future leadership.

“The more that you bash the Fed now, the more you create a shadow of suspicion... the market's gonna wonder now, is the Fed changing interest rates because they just think this is the right thing to do, or are they doing it because the new Fed chair has some side deal with the president?” she states at [07:58].

• Internal Fed Dynamics: Comparing the Fed Chair to a quarterback, Tory explains that while the Chair holds significant influence, the Federal Open Market Committee (FOMC) consists of 12 members whose consensus is crucial for policy decisions.

“We haven't really been in a situation before... it's been 30 years since we've had a situation where the Fed board maybe wanted to do something that the Fed chair did not want to do,” Tory adds at [08:05].

Conclusion: The episode elucidates the delicate balance between maintaining Federal Reserve independence and navigating political pressures, highlighting the potential long-term consequences for monetary policy and economic stability.

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4. Judicial and Political Controversies

Shifting focus to judicial matters, the episode reports on the arrest of Milwaukee County Circuit Court Judge Hannah Dugan. Charged with obstructing a federal immigration enforcement proceeding and concealing an individual, Judge Dugan's case intensifies the Trump administration's confrontations with local officials over deportations. Attorney General Pam Bondi asserts, “No one is above the law,” signaling a stern stance on judicial conduct.

Additionally, the sentencing of former New York Congressman George Santos is covered. Santos, who fabricated significant aspects of his personal and professional life, received a seven-year prison sentence for defrauding political donors and misrepresenting campaign fundraising efforts.

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5. Employment Trends: Rehiring Former Employees

The episode explores the emerging trend of businesses rehiring former employees, particularly in the federal sector. Callum Borchers discusses the phenomenon of "boomerang hires," where organizations re-employ individuals who previously left voluntarily.

“We could see more of these layoffs and rehires now because of the economic uncertainty of the current moment,” Borchers explains at [10:27].

Factors contributing to this trend include fluctuating tariffs, volatile stock prices, and the challenges of determining optimal staffing levels amidst economic unpredictability. While LinkedIn data suggests boomerang hires constitute about 4% of total hires, the current economic climate may drive this number higher as companies seek to stabilize their workforce.

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6. Upcoming Segments and Closing Remarks

Pierre Biename previews upcoming segments, including a detailed market wrap-up and a deep dive into the U.S. public health system’s anticipated overhaul. The episode concludes with acknowledgments to the production team, highlighting the collaborative effort behind delivering comprehensive news coverage.

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Key Takeaways:

• Economic Anxiety: U.S. consumers are increasingly worried about inflation and economic stability, potentially signaling a period of stagflation.

• Federal Reserve Under Scrutiny: Presidential pressure on the Fed raises concerns about the institution's independence and the credibility of future leadership.

• Global Trade Tensions: U.S.-China trade disputes continue to influence global economic policies and market confidence.

• Judicial Integrity: High-profile legal cases underscore ongoing tensions between federal authorities and local officials.

• Employment Dynamics: Economic uncertainty is reshaping hiring practices, with a noticeable increase in rehiring former employees.

This episode of "What’s News" provides a comprehensive overview of the intertwined economic and political challenges facing the United States, emphasizing the critical role of institutional independence and consumer confidence in navigating these turbulent times.

Transcript

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[Pierre Bienname]

Consumer sentiment continues to fall in the US with Americans serving up a bleak outlook on the economy. Plus, how could President Trump's pressure on Jerome Powell make the next Fed chair's job even harder?

[Harriet Tory]

The more that you bash the Fed, the more you create a shadow of suspicion. The market's gonna wonder now, is the Fed changing interest rates because they just think this is the right thing to do, or are they doing it because the new Fed chair has some side deal with the president?

[Pierre Bienname]

And a Milwaukee judge is arrested and charged in federal court for obstructing immigration enforcement. It's Friday, April 25th. I'm Pierre Bienname for the Wall street in for Alex Osola. This is the PM edition of what's News, the top headlines and business stories that moved the world today. Consumer sentiment continues to sour among Americans. According to the University of Michigan's closely watched measure, U.S. households ended April feeling much worse about the economy than they did in March. Its final index out today of consumer sentiment for April was 52.2, down from 57 the prior month. Respondents said they expect prices to surge 6.5% over the next year, up from expectations in March for a 5% increase. The survey said that was the Highest reading since 1981. Wall Street Journal economics correspondent Harriet Tory joins me now. Harriet, what is it that's driving consumer sentiment down?

[Nick Timoros]

Consumers are generally feeling pretty skittish about the economy. And if you look at the various components of the index, they're worried about their jobs, they're worried about their incomes, and they expect higher inflation. So that's really a recip for stagflation. It seems like just a great deal of uncertainty about the direction of the economy is really causing people to feel pretty uncertain. So trade policy, for instance, and prices, you know, how import tariffs will impact prices. Inflation expectations are up by a lot in the short term. So year ahead, inflation expectations are 6.5% this month, and that is extremely high, especially when you look at the most recent inflation data, which is, you know, only a little bit above 2%. So consumers are really expecting a big spike in prices. And over the longer term, you know, five to 10 years, consumers are also expecting higher inflation. Not quite as high, but it was definitely up in April versus in March and it's causing them anxiety.

[Pierre Bienname]

How significant are consumers expectations to the economy?

[Nick Timoros]

Well, consumer spending is what drives the US Economy. But having said that, consumer sentiment doesn't always translate into consumer spending. So for instance, in 2022 we saw a very, very sharp drop in consumer sentiment. People are extreme worried about the economy and very depressed about inflation. But at the same time they carried on spending. And as we saw in the survey, there is a big split along partisan lines. So in April we saw sentiment drop among Democrats to its lowest on record, whereas among Republicans it picked up slightly and expectations for the future they dropped across all parties. So everyone is feeling a little worried about the future. But Republicans are feeling pretty good about the current situation and Democrats on the other hand are feeling very negative about both the current situation and the future.

[Pierre Bienname]

Harriet Tory covers the economy for the Wall Street Journal. Thanks so much Harriet.

[Nick Timoros]

Thank you.

[Pierre Bienname]

And in its first quarter earnings report today, Colgate Palmolive said it's feeling consumers uncertainty firsthand as they have been buying less toothpaste and soap. The maker of Ajax and soft soap lowered its full year guidance based on the estimated cost of tariffs, which it expects to be around $200 million for the year. The figure doesn't account for tariffs that have been paused. Colgate Palmolive now projects earnings will increase in the low single digits compared with previous guidance in January of mid single digit growth. US Stocks ended the week mostly higher after a choppy day of trading. Major indexes closed higher for the fourth consecutive day. The Dow traded close to flat while the Nasdaq composite rose roughly 1.25%. The S&P 500 rose around 3 quarters of a percentage point. But analysts aren't sounding the all clear for markets, cautioning that Trump's tariff policies may have done long lasting damage to the U.S. s credibility with overseas investors. Given the rising challenges from hefty US Tariffs, China aims to implement more growth supporting measures, according to the state run Xinhua News Agency. The Chinese Communist Party's top policymaking body said the government intends to cut interest rates and the amount of cash banks are required to set aside at the central bank. It says it will also make full and effective use of existing fiscal and monetary policies. The Politburo said companies significantly affected by tariffs could receive more funds from the country's unemployment insurance in order to support job retention. China also pledged to maintain a stable and active capital market, which is seen as crucial to anchor confidence in the world's second biggest economy. Coming up, why President Trump's attacks on Jerome Powell could put a shadow of suspicion over the next central bank chief. That's after the break.

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[Pierre Bienname]

Has backed off from an implied threat to terminate Federal Reserve Chair Jerome Powell. But economists and former US Policymakers say the president's demand that the Fed lower interest rates could undermine investors confidence in the next Fed chair. Powell's term ends in May 2026. Nick Timoros is the Wall Street Journal's chief economics correspondent, and he joins me now. Nick, you spoke with some experts and former policymakers. What's their concern regarding the Federal Reserve?

[Harriet Tory]

The Federal Reserve has been seen as independent, which means that they are going to set interest rates based not on some sort of political calendar or presidential demand, but on doing what it takes to keep inflation close to their 2% goal and having a strong labor market. And so when you have people beginning to wonder why the Fed is setting interest rates, is it because of politics or is it because of how they see the economy that can influence what happens with inflation and interest rates on.

[Pierre Bienname]

The part of investors, how would that affect investors thinking?

[Harriet Tory]

As you said, Jay Powell's the fed chair until May of 2026. And so even if you're not going to try to remove him, the question is when you replace him, can the market be confident that that person is going to take the same view towards keeping a lid on inflation? Are they going to set interest rates with the same sort of criteria that they have for the last 20 years, or are you going to try to find somebody who will just do whatever the president wants him to do? And the more that you bash the Fed now, the more you create a shadow of suspicion. As one of these former Fed officials said to me, that the market's going to wonder now, is the Fed changing interest rates because they just think this is the right thing to do, or are they doing it because the new Fed chair has some side deal with the president?

[Pierre Bienname]

It's not only the Fed chair. How could Trump reshape other aspects of the Fed's personnel or policy?

[Harriet Tory]

Well, there are limits to what any Fed chair can do. So the Fed chair has just one of 12 votes on the Federal Open Market Committee. That's the body that sets interest rates. The president may have the opportunity to replace more Fed governors if they resign or retire before their terms are up. But if he only can appoint one Fed governor, then there's less ability maybe to influence what's going to happen in monetary policy. I compare it to the Fed chairs like the quarterback. They're one player on the field and it's a very important player. They get to call the play. But it doesn't mean that every receiver or running back is going to run to the right place. If other members of the FOMC don't agree with what the chair wants to do, then the chair may not get to do that. And we haven't really been in a situation before. Really. It's been 30 years since we've had a situation where the Fed board maybe wanted to do something that the Fed chair did not want to do.

[Pierre Bienname]

That was Nick Timiros, the Wall Street Journal's chief economics correspondent. Nick, thanks so much.

[Harriet Tory]

Thanks for having.

[Pierre Bienname]

A Milwaukee judge was arrested this morning and has been charged in federal court for allegedly helping a man avoid immigration enforcement last week. The move is a major escalation of the Trump administration's clash with local officials over deportations. Milwaukee County Circuit Court Judge Hannah Dugan is charged with obstructing a proceeding before a department or agency and concealing an individual to prevent discovery or arrest. She has been released after appearing in federal court in Milwaukee. The next hearing is set for May 15. A lawyer for Dugan said she will defend herself vigorously and looks forward to being exonerated. In a post on X, Attorney General Pam Bondi said no one is above the law. And George Santos, the disgraced former New York congressman who fabricated his life story to win public office, was sentenced to just over seven years in prison today for stealing from political donors and lying about his campaign fundraising. Some US Businesses that have cut too many jobs are turning to ex employees to rejoin their ranks, among them thousands of federal workers who have been let go and recalled in recent months. Callum Borchers talked to our your Money Briefing about how common such rehiring might be.

[Callum Borchers]

The unsatisfying but honest answer is we don't know Exactly. There's some LinkedIn data from a few years ago showing about 4% of hires are boomerangs, Right? That's the term for people who leave and come back, but LinkedIn hasn't updated that figure recently, and in any case it includes people who left voluntarily. I think the reason recruiters and job coaches say we could see more of these layoffs and rehires now is because of the economic uncertainty of the current moment. Right? We got tariffs going on and off, stock prices going up and down. Businesses often talk about right sizing when they do these layoffs. But it can be hard to know what the right size is in this market.

[Pierre Bienname]

And you can hear more about how to deal with such renewed job offers on today's episode of youf Money Briefing. And that's what's news for this week. Tomorrow, you can look out for our weekly markets wrap up, what's News in markets. Then on Sunday, we'll be looking at what's in store as the US Embarks on its biggest public health shakeup in modern history. That's in what's New Sunday. And we'll be back with our regular show on Monday morning. Today's show was produced by Anthony Banci with supervising producer Michael Kosmides. Additional support this week from Adam Falk. Michael Lavalle wrote our theme music. Aisha Al Muslim is our development producer. Scott Salloway and Chris Sinceley are our deputy editors. And Falana Patterson is the Wall Street Journal's head of news audio. I'm Pierre Bienime. Thanks for listening.