A slugging match of two titans

Relations between the two people with the greatest influence over the future direction of the gold price have been uneasy for a while.

Almost a year ago the then Presidential hopeful Donald Trump fired a cruise missile across the bows of the good ship Jerome Powell, who had been elevated to the chairmanship of America's central bank, the Federal Reserve by Trump in 2017.

Trump accused Powell in February 2024 of "trying to lower interest rates for the sake of maybe getting people elected" - by which he meant his Democrat rival for the White House. Powell's chairmanship of the Fed is safe for now; the Fed chair can't be fired, much as Trump would like to eject Powell. Powell's seat is secure until 15 May 2026, when his term ends.

But can he endure another two years of Presidential wrath? "Jay Powell and the Fed failed to stop the problem they created with inflation. I will do it by unleashing American energy production, slashing regulation, rebalancing international trade, and reigniting American manufacturing." So said the President this week, after the Federal Open Market Committee (FOMC) kept interest rates at 4.25%-4.5%. The day before President Trump insisted that borrowing costs should fall "a lot". For Trump the FOMC's unanimous decision must have seemed like giving him the middle finger. He told attendees at the World Economic Forum in Davos, Switzerland last week that he would demand that interest rates "drop immediately".

Who is responsible for inflation?

Blame for the recent spike in inflation - which hit more than 9% in the US, more than 11% in the UK and 11.5% in the European Union (EU) - is usually laid at the door of a range of events; the Ukraine war and lower Russian fossil fuel exports, the Covid-19 pandemic, supply chain blockages are generally the guilty parties for most media.

Few bother to search for deeper reasons behind the inflation surge, in the UK the worst in 40 years. The deeper reason is that governments around the world responded to the pandemic by recklessly splurging cash, printing multi-trillion Dollars and other fiat currencies and justifying the 'free' cash as Covid-19 'relief'. Donald Trump must share the blame for the giveaway cash scheme. The CARES Act (the Coronovirus Aid, Relief and Economic Security Act) was signed into US law on 27 March 2020 by President Trump in his first term in the White House.

CARES was the largest (to date) giveaway in US history, amounting to 10% of America's gross domestic product (GDP). The $2.2 trillion handout may have cushioned many Americans from the worst of the pandemic but it also helped reduce the Dollar's purchasing power and gave a huge impetus to inflation. All that cash inevitably competed for fewer goods as workers were forced to stay at home. Powell was at the Fed when CARES was introduced but was no more than a helpless bystander.

Fed caution

Powell is loyal to his institution, not to the White House. The Fed's independence from political interference has been in place since the 1935 Banking Act, when its then chairman, Marriner Eccles, told the Senate Banking Committee that the Fed "should not be considered a political body and that the Act "makes the [Fed] board a nonpartisan body."

The Fed has a dual mandate - the pursuit of maximum employment and stable prices. The FOMC issued a statement after keeping rates on hold, in which it said the "unemployment rate has stabilized at a low level in recent months" but "inflation remains somewhat elevated." By keeping interest rates at their 4.25%-4.5% level the FOMC is indicating that it is comfortable with the current unemployment rate which is just above 4%. Inflation however is another matter. The Fed has a target of getting and keeping inflation at 2% but it's proving very sticky and slightly rising. The December 2024 figure was 2.9%, against November's 2.7%.

Fed independence directly flouts President Trump's wish to control all major moving parts of the US. Turning a deaf ear to his call for lower interest rates will not please him.

Getting nasty

Powell said the new administration's policies were "not for us to criticize or to praise." Such blandishments will not fool President Trump. Behind his cool words Powell and the rest of his board is well aware that if the President is true to his word and imposes tariffs on the imports of other countries then the consequences for Americans will be a new surge in inflation.

The stand-off between Trump and Powell could well get nasty in the two years left for Powell at the Fed. It's inconceivable that Trump will re-appoint him in 2026. It's equally inconceivable that the Fed will lower interest rates without a run of months demonstrating that inflation is headed towards 2%.

The titans of US money are squaring up. Getting between them is not advised. Gold with Glint provides a good perch to watch the clash develop.

At Glint, we make every effort to demonstrate a balanced conversation between gold, crypto and fiat currencies when it comes to purchasing power and, while we strongly believe that gold is the fairest and most reliable currency on the planet, we need to point out that it isn’t 100% risk free. While we have seen a steady increase over time, the value of gold can fall, which means that its purchasing power can also decline.