Power Struggle Heats Up

Last night, U.S. stocks opened with a brief decline, then quickly surged to the intraday high, with the precious metals sector soaring across the board. The direct catalyst for this rally is the sharply rising expectation of Fed rate cuts, backed by three key signals worth noting.

**Two Layers of Meaning Behind the Treasury Secretary's Remarks**

U.S. Treasury Secretary Yellen's recent speech contains hidden implications. The first layer is a proposed modification to the inflation target—she advocates changing the fixed 2% inflation goal to a range, such as 1.5%-2.5% or 1%-3%. At first glance, this appears to be a technical adjustment, but it has far-reaching impacts. The Fed has traditionally focused on two indicators: unemployment rate and inflation rate. But now, if the inflation target becomes a broad range, the standard becomes essentially meaningless. Since inflation tends to fluctuate within this range most of the time, inflation is no longer a primary constraint on rate cuts.

The second, more overt layer—Yellen hints at weakening the Fed’s independence, including replacing the dot plot with an inflation range, thereby narrowing the central bank’s intervention scope in the economy. This is effectively a power struggle over discourse, shifting decision-making authority from the Federal Reserve to the Treasury (White House). On the surface, it appears to weaken the central bank’s influence; fundamentally, it enhances executive power over monetary policy.

**The Attitude of the Next Fed Chair**

White House National Economic Council Director Lael Brainard recently stated that the U.S. is lagging behind other global central banks in rate cuts. Interestingly, Brainard is one of the frontrunners to become the next Fed Chair (another is Kevin Wacc). His remarks are essentially a signal to higher-ups about his stance. Regardless of who ultimately takes the helm, the direction to accelerate rate cuts is already clear.

**Market Under Political Pressure**

Trump recently issued a stern warning: anyone who disagrees with him will not become Fed Chair. He hopes the new chair will lower interest rates when the market performs well, rather than "suddenly" disrupting the market. The implied message is that the Fed is to serve political objectives.

Trump needs the U.S. stock bull market to continue into next year to please voters. The Fed, in this process, is merely a tool to achieve this political goal. The current policy bias is quite clear: markets are driven by political cycles rather than fundamentals.

**Long-term Hidden Risks in the Market**

In the short term (before the mid-term elections in November 2026), this manipulation pattern may continue. Global financial markets should maintain a relatively stable environment. But the problem is, markets have their intrinsic logic. In the long run, such artificially distorted policy frameworks will eventually backfire on the market—it's only a matter of time.

For traders, the window before the mid-term elections next year might be relatively safe, but beyond that, uncertainties definitely exist. Monitoring market reactions and continuously adjusting strategies is the more prudent approach.