Trump Is stuck with the Fed’s Powell. Will he make peace?

U.S. bond markets have had a minor meltdown since former President Donald Trump pulled ahead in prediction markets and then won a second term, putting upward pressure on mortgages and other household borrowing costs.

If the move continues, it could be a major source of disappointment for voters who trusted Trump to improve housing affordability and the cost of living.

Fortunately, there’s a clear way for him to mitigate that damage and start his term on the right foot with bond markets: He should declare his full faith in Federal Reserve Chair Jerome Powell, whose term runs until May 2026, and pledge to hold his tongue on matters of monetary policy.

I know this is a long shot, but hear me out.

On the back of the worst inflation in four decades, Trump’s agenda of new import tariffs and high deficits has made bond investors understandably nervous. Trump’s record of antagonism toward the country’s independent central bank, the key safeguard against higher prices, only makes this worse.

During his first term, Trump famously berated Powell on Twitter for keeping rates too high. He has said that he wouldn’t reappoint Powell in 2026. Meanwhile, theories have swirled about ways that the new president could push out or try to undermine Powell before then (in an interview with Bloomberg Businessweek, Trump denied he would fire the Fed chair, but he also seemed to caveat his response: “I would let him serve (his term) out especially if I thought he was doing the right thing,” he told the publication on June 25).

The issue reemerged last week at the Fed’s press conference after policymakers lowered the fed funds rate by a quarter percentage point to 4.5% to 4.75%. Here’s the terse exchange between Powell and Politico reporter Victoria Guida:

Guida: Some of the president elect’s advisers have suggested that you should resign. If he asked you to leave, would you go?

Powell: No.

Guida: Can you follow up on — do you think that legally you’re not required to leave?

Powell: No.

Chair Powell was not messing around. Yields on 10-year notes initially fell around four basis points on the back of that comment, capping an 11-basis-point drop on the day.

Unfortunately, I’m fully aware that my peace plan may not be well received. Trump does not have an impressive record of pragmatism, nor is he known for extending olive branches to those with whom he disagrees. His first term was marked by a uniquely high rate of turnover in his cabinet, the firings often filled with reality show-like intrigue. He freely said what he thought, sometimes at the expense of jumps in yields and stock market volatility.