In 2024, the political storm in the United States has once again begun, and this time the eye of the storm is none other than Federal Reserve Chairman Jerome Powell. As the helmsman of the most authoritative economic institution in the United States, Powell has recently become the target of strong attacks from former President Trump because of his decision to violently cut interest rates by 50 basis points. Trump accused the Fed of "political manipulation" by cutting interest rates at this time, and believed that Powell and his team intended to help Democratic candidate Kamala Harris win the presidential election.

This turmoil over financial policy and politics has plunged the US political arena into chaos again, with Trump even threatening that Powell could face jail time if he is re-elected president.

In September 2024, the Federal Reserve suddenly announced that it would cut the benchmark interest rate by 50 basis points. This decision caused a huge reaction in the global market, especially in the United States, where both the economic and political circles expressed strong concern. The purpose of the interest rate cut is to respond to the risk of slowing economic growth in the United States and to ease the pressure of inflation. However, the timing of this interest rate cut coincided with the approaching US presidential election, and Trump was very dissatisfied with it, believing that this was a typical "political manipulation."

Trump has always been very sensitive to the Fed's policies. During his first presidency, he repeatedly publicly accused Powell of not following his advice on rate cuts and even threatened to remove him from office. However, Powell resisted Trump's pressure at the time and insisted on the independence of the Fed. This time, during the Biden administration, the Fed made such a drastic rate cut decision on the eve of the election. In Trump's view, this is simply paving the way for Democratic candidate Kamala Harris.

For Trump, this rate cut is not only to help the Biden administration "decorate the facade", but also to influence the election by "manipulating the financial market". Trump's logic is that the Biden administration's economic policies have exposed many problems, especially when inflation remains high. The rate cut will only cover up these problems and allow the Democratic Party to gain more support in the election. Therefore, Trump believes that Powell's move is to "help the election", and if he comes to power, he will never let him go easily, and even threatened to make Powell "sit in jail for life."

Causes and background of the incident

The Fed's interest rate cut policy is not without reason. In recent years, the US economy has experienced severe inflation and supply chain crises after the epidemic. In order to curb inflation, the Fed has implemented multiple interest rate hikes in the past two years. However, excessive interest rate hikes have led to slower economic growth and weak market demand, especially the real estate market and consumer credit market have been hit hard. In this case, appropriate interest rate cuts have become a means to restore economic vitality.

However, the intervention of politics has made this rate cut more complicated. The 2024 US election is extremely fierce, and the election showdown between Trump and Harris has become the focus of global attention. As a leader of the Republican Party, Trump's economic policies are in sharp contrast with those of the Democratic Party. In his eyes, the economic policies of the Biden administration are a "complete disaster", and Harris, as a Democratic candidate, will inevitably continue Biden's policy direction. Therefore, any move that is conducive to better economic performance will be regarded by Trump as a "strategy of the hostile camp."

As the chairman of the Federal Reserve, Powell has always emphasized the independence of the Federal Reserve in public, claiming that the Fed's decisions are based on economic data and market demand rather than political interference. But it is undeniable that the Fed's every move is often seen by the outside world as having a far-reaching political influence. In the context of the special election in 2024, Powell's decision to cut interest rates is naturally given a strong political color.

Trump's hostility towards Powell can be traced back to his administration. In 2018, Powell succeeded Yellen as the chairman of the Federal Reserve, but in Trump's view, Powell did not implement the economic policies he wanted, especially on the issue of interest rate cuts. The two sides had public conflicts many times. Trump once hoped to stimulate economic growth through low interest rates, especially to boost the stock market, but Powell's decision at the time was more to deal with inflation risks and insisted on raising interest rates. This disagreement has kept the relationship between the two tense, and the interest rate cut incident has become the fuse for a new round of conflict.

Impact on the world and China

Every policy adjustment by the Federal Reserve will have a profound impact on the global economy. This violent 50 basis point rate cut not only triggered a political turmoil in the United States, but also caused a wave of turmoil in the global financial market. Especially for emerging market countries, the Federal Reserve's interest rate cut decision often affects capital flows and exchange rate fluctuations.

First, the demand for the US dollar by global investors will decline, and the US dollar exchange rate may weaken as a result. For countries that rely on exports, a weaker dollar may bring foreign trade advantages, but for those countries with high debts denominated in US dollars, they face pressure to repay their debts. Therefore, the Fed's interest rate cut will undoubtedly lead to a redistribution of global capital flows, especially for emerging market countries, which may face the risk of capital outflows.

For China, this rate cut also has an important impact. In recent years, China and the United States have had close financial and economic interactions, and the Fed's policy adjustments will have a chain reaction on China's monetary policy and capital market. With the US rate cut, global liquidity will increase, which may further push up the performance of China's stock and real estate markets. However, this also brings pressure on the RMB exchange rate. The weakening of the US dollar and the relative strengthening of the RMB may weaken the competitiveness of China's exports and bring certain challenges to China's foreign trade situation.

In addition, the technological and trade frictions between China and the United States have not been fully resolved, and Trump's remarks indicate that he will continue to exert greater pressure on China after he takes office. This means that China not only has to deal with the uncertainty in the global financial market, but also needs to prepare for Trump's potential policy changes. If Trump comes to power again, he may further curb China's development in the global economy through trade sanctions and technological blockades.

How should China respond?

Faced with the Fed's rate cut and Trump's tough stance, China must remain calm and take a series of countermeasures. First, China should continue to adhere to its monetary policy independence. In the context of global financial market fluctuations, the People's Bank of China should flexibly adjust monetary policy according to the actual situation of the domestic economy and avoid over-reliance on changes in the external market. Especially in the context of the Fed's rate cut, China should maintain the stability of the RMB exchange rate to ensure the competitiveness of foreign trade enterprises.

Secondly, China should strengthen cooperation with other economies around the world, especially when the Fed's interest rate cuts have led to increased global capital flows. China can further promote the internationalization of the RMB and reduce its dependence on the US dollar by strengthening cooperation with countries along the Belt and Road. This will not only help improve China's voice in the international market, but also provide more market opportunities for China's foreign trade enterprises.

At the same time, China should also strengthen the opening and supervision of its financial markets to attract more international capital into the Chinese market. Against the backdrop of increasing global liquidity, the flow of capital will become more diversified. China can improve the laws and regulations of its financial markets, enhance the quality of its financial services, attract more international investors, and transform external risks into a driving force for domestic development.

Finally, China should continue to maintain an open attitude and continuously promote its own scientific and technological innovation and industrial upgrading. Although Trump may come to power again and put more pressure on China, China has a huge domestic demand market and abundant talent resources, and has the foundation to cope with external challenges. By increasing investment in science and technology and improving independent innovation capabilities, China can occupy a more advantageous position in global competition.