Whatever good standing Donald Trump had in the eyes of India’s Prime Minister, Narendra Modi, it has disappeared in a puff of tariff smoke. India was already smarting from the imposition of a twenty-five percent tariff last week, but with the threat of the levy doubling in three-weeks’ time if Delhi did not refrain from its oil trade with Russia, the outrage is almost seismic. Rightly, Indian politicians and commentators smart at the sheer double-standards of the White House and point to China being an even greater importer of Russian barrels without redress. Obviously, giving twenty-one days to comply is straight from the playbook of President Trump and is a leverage play. Bringing Russia to ceasefire talks because it is about to lose one of its best customers, and boxing India into a corner where the lesser of two evils is to sign the original twenty-five percent tariff deal while denuding Moscow of petrodollars, appears to be the goal. The meeting between the US envoy Steve Witkoff and Vladimir Putin yesterday has led Donald Trump to announce, “great progress” and that a meeting between Putin and he could happen as soon as next week. Great progress indeed if Moscow could be trusted. It is difficult to conceive how President Putin squanders his upper hand in Ukraine and a willingness to give up his desires on the four eastern Ukrainian territories. Meanwhile, Trump has burned through any diplomatic capital with Delhi and according to a Reuters sources, refiners outside of state-controlled refiners have not been told to curb Russian buying. Diplo-speak is many-sided and in public it does appear that India is in no mood to be bossed by the US. Howsoever one looks at US inventories and the increased refinery runs, Aramco’s raising of OSPs into Asia and China’s increased year-on-year, but reduced month-on-month crude imports, the linked Russian and Indian tariff play is the clear and present driver with the outcome anything other than clear.

Fed independence

In a world that is constantly under threat in terms of independent thinking; be it from governmental interference, didactic forms of teaching and one’s very own algo-tracker feeding news it suspects you prefer or even, conspiratorially, news it wishes you to read; to blithely accepting alcohol units are a thing and five portions of fruit and vegetables will guarantee a long lifespan; it should come as no surprise when central bank independence is about to be scuppered.

Independence in central banks has been the cornerstone of economics for several decades, longer in the United States. Such autonomy from being government mouthpieces to the guardians of national monies has been a hard-won affair and become more complex as the world and its finances grow in sophistication. The idea which hails from the nineteenth century economist Walter Bagehot of central banks being the lender of last resort may still be true, but the role has evolved into so much more, and taking the contemporary banking crisis of 2008/2009 into account, independence is not only needed, it is prerequisite on how a nation’s economy is judged. Interference from the political executive would then stress the international standing of a country’s bank.

This obviously refers to the constant condemnation the US Federal Reserve finds itself under from a recalcitrant Donald Trump whose personal attacks on the bank’s Chair, Jerome Powell are cringe-inducing. Criticism from the Oval Office towards the Eccles Building is no new phenomenon. Presidents have been at it for years and it normally involves interest rates and how they are politically charged. The only success came from the master of guile and dark deeds, Richard Nixon. The Fed Chair at the time was Arthur Burns, a personal friend, and while Burns’ acquiescence to the imposing Nixon allowed a massive election win, it foregrounded a 1970s steeped in inflation and decline with the Fed bearing most of the blame. Jerome Powell is no friend of Donald Trump, and however bland an individual his public persona may portray, its identity is one of fidelity. He will not win an election for anyone let alone adjust policy at the expense of American economic stability. 

The resignation of Adriana Kugler, nominated to the Federal Board of Governors in May 2023 by President Biden, is about to fall deliciously into the arts of Donald Trump. It is an incredibly fortuitous turn of events for the President. His tenure in the White House effectively ends in November 2028, which ironically is when Jerome Powell’s span on the Board of Governors ends. Powell’s should have been the only exit; therefore, Trump seemed to have no ‘in’ if he wanted to affect the rate decisions of the Federal Open Market Committee. With the surprising return of Kugler to the halls of academia, it offers a free hit for the President to nominate a new Board Governor. Powell may be staying on the Board until 2028, but he must relinquish the Chair in May next year. This gives enough time for a Trump nomination to be confirmed by the Senate before the mid-term elections of November and the possibility of a majority loss resulting in agenda-stasis and a lame-duck Presidency. Whether or not such a nominee can go onto gain the Chair is not exactly straightforward. As the Wall Street Journal points out, anyone nominated to fill Kugler’s seat who is auditioning for the chairmanship risks compromising their perceived independence, or willingness to make unpopular decisions to contain inflation, by demonstrating loyalty to Trump’s preference for lower rates.

Of course, having a personal pick on the Board or even the Chair does not guarantee an acceding group of governors, but a Trump wish on interest rates is now more than fancy. As an aside it is remarkable on how the highest offices of American government; Presidency, Senate, House, Supreme Court and now possible the Federal Reserve will at least for a time be occupied by greater or lesser degrees of Trump influence. What this circumstance means for markets is as quantifiable as most of Trump’s vast variables. However, a successful gelding of the Fed’s independence is a horror show for the financial standing of the US in the world and a likely accelerator for inflation. There is no dot plot to this, but that is the point. Another level of uncertainty has been laid on already meandering strata that stretches out until the end of 2028.

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