Fed Personnel Earthquake: Trump Installs Dovish Ally

President Trump has formally nominated White House Economic Advisory Council Chair Stefano Milani to fill the temporary vacancy left by outgoing Fed Governor Kugler. Markets swiftly interpreted this appointment as a key move by the administration to influence monetary policy. Nomura FX strategists noted Milani’s nomination "suggests a more dovish tilt at the Fed," citing his published framework for weakening the dollar, which fuels speculation that the White House prioritizes a weak-currency policy over inflation control.

Milani’s appointment marks merely the first step in the White House’s Fed overhaul. Wolfe Research analysts revealed Trump may exploit this vacancy to install his "intended Powell successor" early, creating a "shadow Fed chair" mechanism to bypass standard procedures. Simultaneously, Treasury Secretary Bessette has expanded the Fed chair candidate list to approximately ten names. Former St. Louis Fed President Bullard, ex-Bush administration economic adviser Sumerlin, and current Fed Governor Waller are among contenders, with Waller—who supported July’s rate cut and criticized "excessive caution"—emerging as the frontrunner.

Trump’s monetary policy interventions have moved from backstage to center stage. His recent public demand for "three percentage points of rate cuts," far exceeding market expectations, has triggered profound concerns about central bank independence. Pepperstone strategist Michael Brown stated bluntly: "This confirms what we already knew—today’s Fed is more political and less independent." The dollar index fell 0.6% this week, bringing its year-to-date decline against major currencies to 9.5%, with Nomura warning that eroded independence fears will sustain dollar selling pressure.

Despite escalating political pressure, markets still price in a 93% probability of a September rate cut, anticipating at least two reductions by year-end. UBS maintains external pressure won’t fundamentally alter policy, projecting 100 basis points of cuts over 12 months. However, Qin Tai of Huafu Securities Research notes cooling labor markets haven’t yet eased inflation, warning of persistent price pressures ahead. To preserve credibility, the Fed may resist aggressive easing regardless of political demands.

Though Chair Powell’s governorship extends through 2028, the White House has clarified it wants him to depart completely post-chairmanship to avoid "shadow chair" confusion. With upcoming U.S. inflation data critical for September’s decision, markets watch closely. Yet the deeper crisis is undeniable—central bank independence erosion is now reality, as boundaries between politics and monetary policy blur. While JPMorgan strategists still assert "independence will largely hold," the dollar’s relentless decline on trading screens tells a different story in silence.