A twofold achievement! Trump nominates Miran, both placing a confidant and delaying the leadership change

U.S. President Trump is reshaping the Federal Reserve's layout, starting with an unexpected short-term appointment.

On Thursday, August 7, U.S. President Trump nominated his senior economic advisor Stephen Miran to serve as a member of the Federal Reserve Board, aiming to fill the vacancy left by the resignation of Board member Adriana Kugler, which will expire in January next year.

According to the latest media analysis, this move serves two purposes: it places an ally who supports interest rate cuts within the Federal Reserve in the short term, while cleverly buying time for himself to plan the critical personnel appointment of the next Federal Reserve Chair.

Trump made it clear that “in the meantime, we will continue to look for a permanent replacement,” implying that this is merely a temporary arrangement. This has been interpreted by the market as Trump strategically positioning for candidates to succeed current Chair Jerome Powell after his term ends in May next year.

After the announcement, concerns about the potential erosion of the Federal Reserve's independence intensified, causing the dollar index to fall. Nomura Securities foreign exchange strategist Yusuke Miyairi pointed out that worries about weakened Federal Reserve independence “could naturally lead to selling pressure on the dollar.”

For investors, this appointment not only suggests that there may be more voices supporting interest rate cuts within the Federal Reserve, but more importantly, it indicates the policy path Trump hopes the Federal Reserve will take and lays the groundwork for potentially more aggressive Federal Reserve reforms in the future.

A “Transitional” Appointment: Buying Time, Keeping Options Open

Trump's nomination of Miran is fundamentally about the word “transitional.” Miran's term will only last until the end of January next year, making it a typical “stopgap measure.”

According to analysts Marco Casiraghi and Gang Lyu from Evercore ISI in a client report, “By choosing Miran, Trump has made a transitional appointment, buying himself time until January to make major decisions.”

They believe this move allows Trump to keep his options open without prematurely locking in the next Federal Reserve Board member, especially the next Chair.

According to the rules, a nominee for Federal Reserve Chair must first be a member of the Board. After Miran's short-term term ends, the position will become a full 14-year term. This creates an opportunity for Trump to introduce an “outsider” early next year and ultimately appoint them as Federal Reserve Chair. At the same time, this does not preclude him from considering popular candidates such as current Board member Waller. According to public information, former Federal Reserve Board member Warsh and Chairman of the Council of Economic Advisers Hassett are also on Trump's consideration list.

An Ally of the “Rate Cut Faction” Joins

While gaining strategic time, Trump also reaps another direct benefit: increasing the number of decision-makers within the Federal Reserve who support his call for interest rate cuts. Trump has consistently criticized the Federal Reserve and Chairman Powell for their slow actions on interest rate cuts, believing that high rates increase the government's debt costs and suppress economic growth.

Miran, who holds a Ph.D. in economics from Harvard University, aligns closely with Trump's policy stance. If his nomination is confirmed by the Senate, he will add an important vote to the dovish camp within the Federal Open Market Committee (FOMC).

Joseph Brusuelas, chief economist at RSM US LLP, stated that Miran's addition would represent "an extra vote for rate cuts, or a dissenting vote when the committee chooses to stand pat." Notably, at last month's meeting, governors Waller and Bowman cast dissenting votes in support of rate cuts. Miran's arrival may make it more difficult to reach consensus on future Federal Reserve policy decisions.

On tariffs, Miran will also be a strong ally for Trump. He publicly stated that Trump's tariffs "do not have significant macroeconomic evidence indicating they exert pressure on prices."

Overall, we expect tariffs will not lead to significant inflation... (If tariffs do lead to inflation) it would only be a one-time change in price levels, not a lasting trend.

Challenges to Federal Reserve Independence Escalate

Miran's nomination has garnered significant market attention not only because of his dovish stance but also due to his past proposals for radical reforms to the Federal Reserve.

In a document co-authored with current Treasury Chief of Staff Dan Katz in March 2024, Miran attributed the Federal Reserve's policy mistakes to "groupthink" and proposed a series of measures aimed at undermining the Fed's independence. These suggestions include shortening the terms of governors, clarifying that governors "serve at the president's will," and placing the Fed's funding sources under the control of congressional appropriations.

Miran and Katz explicitly stated in the document that the Fed's independence "may also confer power without accountability." This viewpoint has left many economists and investors deeply unsettled. David Wilcox of the Bloomberg Economic Research Institute responded that the plan would "shatter market confidence," as historical experience shows that increased political control often leads to worse inflation.

Miran has also written papers related to the "Mar-a-Lago Agreement," advocating for a depreciation of the dollar's long-term value and publicly defending Trump's pressure on the Federal Reserve.

Although some analysts believe that Miran, as a new member, will find it difficult to change the Fed's policy direction or undermine its independence in the short term. However, as Brusuelas pointed out, his presence is a clear signal that what Trump wants is "a monetary policy biased towards inflation and promoting growth."

At the same time, this may end the FOMC's long-standing tradition of striving to "speak with one voice." Brusuelas stated, "In the foreseeable future, consensus decisions on the direction of monetary policy may disappear." For the market, this means it must adapt to a Federal Reserve with a more diverse range of views and greater disagreements in the future. Ultimately, the market's focus will still be on the competition for the next Federal Reserve Chair, and Miran's nomination undoubtedly adds more variables to this contest