EconoScope | White House – Fed clash highlights strains on U.S. economic stability

(ECNS) -- A renewed clash between the White House and the Federal Reserve has raised fresh questions about the stability of U.S. economic policymaking, as political pressure on the central bank intensifies and uncertainty grows over who will succeed Federal Reserve Chair Jerome Powell.

U.S. media reports say prosecutors have launched a criminal investigation into Powell, focusing on the renovation of the Federal Reserve's headquarters and his previously false statements to Congress related to the project. Powell has dismissed the investigation as a pretext, saying the renovation is being used as an excuse while the real pressure stems from the Fed's refusal to set interest rates in line with the president's preferences.

U.S. media outlets have noted that the battle over the next Fed chair is spilling from Washington into Wall Street.

Within the administration, White House economic adviser Kevin Hassett is widely viewed as a leading contender. Hassett has maintained close ties with President Donald Trump and holds policy views closely aligned with the White House, leading some observers to say he would be more inclined to coordinate with the administration on the pace of rate cuts and broader macroeconomic policy.

Reuters reported that Trump said at a Cabinet meeting that the candidate list had been narrowed to one. The comment was widely interpreted as referring to Hassett.

Critics on Wall Street, however, argue that Hassett, who has long defended presidential policies and openly criticized the Federal Reserve, is unqualified to lead an independent central bank.

According to The Wall Street Journal, some figures within the financial community have been lobbying for Kevin Warsh, a former Fed governor and Morgan Stanley banker with deep ties to Wall Street, viewing him as a more independent option.

As Washington and Wall Street pull in opposite directions, a third contender has quietly emerged: Federal Reserve Governor Christopher Waller. Compared with the two Kevins, Waller is seen as having fewer political connections, and this relative distance from the White House has earned him greater acceptance on Wall Street. At the same time, his coherent stance on rate cuts and support for institutional reform partially align with Washington's policy demands.

The core divide between Wall Street and Washington lies in whether the Federal Reserve should uphold monetary policy independent or politicized, said Liu Ying, researcher at the Chongyang Institute for Financial Studies at Renmin University of China. She told China News Network that the former prioritizes predictability and institutional stability, while the latter wants monetary policy to better serve fiscal goals and political considerations.

Liu warned that the stark differences among the three candidates in political positioning and market credibility highlight the structural tension now facing the Fed's independence. Erosion of its independence, she said, could trigger sharp shifts in capital flows, heightened exchange-rate volatility, and broader instability in U.S. and global financial markets.

Concerns over the Fed's role come as economic uncertainty in the United States continues to build. Bank of America CEO Brian Moynihan has cautioned against excessive fixation on interest rate policy, arguing that if the economy is seen as functioning only through rate hikes or cuts, it suggests deeper structural problems.

Tariffs have pushed up costs across sectors, while the U.S. unemployment rate reached a four-year high in November 2025, according to data from the Bureau of Labor Statistics. Inflation, compounded by tariffs, has driven up healthcare, energy and housing costs, squeezing household spending. Consumer confidence has declined for five consecutive months, according to Bloomberg.

U.S. government debt has also reached its highest level in peacetime history, raising concerns that any loss of global confidence in U.S. regulatory institutions could amplify financial risks.

In this context, Nobel laureate Paul Krugman warned last month on Paul Krugman that U.S. economic data are already weak enough to cause serious concern that "a recession is coming."

While the contest for the next Fed chair will eventually be decided, the greater test may lie beyond personalities—whether Washington and Wall Street can confront the mounting pressures facing the U.S. economy and ordinary Americans, and how those challenges will ultimately be addressed.

(By Gong Weiwei)