At the intersection of Constitution Avenue and 20th Street in Washington, sits the headquarters of the Federal Reserve—the Eccles Building. It is said that in the deep corridors of this white marble structure, an unsettled ghost still wanders. This ghost is none other than Arthur F. Burns, the former Federal Reserve chairman who ultimately succumbed to massive pressure from President Richard Nixon and opened the floodgates of the "Great Inflation" in the 1970s.
Half a century later, a similar script seems to be brewing in a more radical and open manner. This is no longer a secret conversation in the Oval Office, but a carefully planned "shadow battle" intended to simultaneously detonate in public opinion and financial markets. When Donald Trump considers announcing his successor nearly a year before the current chairman Jerome Powell's term ends, he is summoning not just a future central bank leader, but the ghost of Burns. This signals the ultimate stress test of the Federal Reserve's independence—the cornerstone of the post-war global financial order—with stakes and tactics far beyond those of the past.
The Devil's Deal in the Tape Recording
To understand today's game, we must return to the historical source. In 1971, Nixon's secret recording system captured a chilling conversation between him and Fed Chairman Burns. Facing the upcoming 1972 election, Nixon made no attempt to hide his intent: "I want... interest rates to come down before the election. We can worry about inflation after the election."
Burns, an economist initially known for his iconic pipe and resolute image, ultimately could not resist the continuous pressure from the White House. He surrendered. The Fed's printing press began to accelerate, laying a red carpet of cheap credit for Nixon's re-election campaign. The consequences were disastrous. This "devil's deal" is widely considered one of the triggers that ignited America's decade-long "Great Inflation", a nightmare that was only ended in the early 1980s by another legendary chairman, Paul Volcker, at the cost of a painful economic recession.
The story of Nixon and Burns became the most classic negative case in the textbook of central bank independence. It reveals a simple yet profound truth: when monetary policy's reins are seized by short-term political needs, the long-term cost will be borne by the entire national and global economy. For forty years after Volcker, the Fed's independence was seen as a sacred, inviolable consensus—the "stabilizing anchor" ensuring the dollar's credibility and global financial stability.
However, the lessons of history seem to be forgotten. What Trump is doing is transforming Nixon's whispered conversations in a private room into an open strategy announced to the world through a megaphone.
From "Backyard Pressure" to "Frontline Subversion"
The core difference between Trump's "shadow chairman" strategy and Nixon's methods lies in its "openness" and "institutional" nature. Nixon's pressure was behind-the-scenes and personalized; Trump's strategy is public and systematic, attempting to fundamentally change the rules of the game.
The true power of this strategy lies in "weaponizing" the Fed's core weapon—"forward guidance"—and turning the gun towards the Fed itself. Normally, the Fed guides market expectations by clearly communicating future policy paths to reduce uncertainty. The presence of a "shadow chairman" will create another information source outside the official channels, an "alternative forward guidance" from the future, laden with political color.
However, this double-edged sword also hangs over the nominee's own head. As Nick Timiraos, a senior Wall Street Journal reporter known as the "Fed whisperer", points out, the pre-selected "shadow chairman" will immediately fall into an almost unsolvable political dilemma. If he publicly criticizes the current Fed policy, catering to Trump's call for rate cuts, he might be seen by the market and Senate as a "political sycophant" without independent backbone, thus endangering his final appointment confirmation. After all, his appointment requires support from his future colleagues. Conversely, if he chooses to defend the Fed's cautious stance, emphasizing data dependence and anti-inflation importance, he might instantly enrage Trump and lose this job before even officially taking office.
This is the most subtle and dangerous link in this "shadow battle": it not only tests the current chairman Powell's resolve but also tests each potential successor's skill in walking the tightrope between loyalty and credibility. Trump's casting has thus become more like a high-stakes gamble.
The current hot candidates precisely represent the two extremes of this dilemma.
The first category is the "credibility bet"—Kevin Warsh. As a former Fed governor and a key aide to Chairman Bernanke during the 2008 financial crisis, Warsh has enormous credibility on Wall Street and in academic circles. He is seen as an "insider" who deeply understands financial system operations. Traditionally, he was a "hawk", critical of inflation and the Fed's "mission drift". Ironically, his recent statements seem to have a "dovish turn", providing theoretical support for the low-interest-rate path Trump desires. Choosing Warsh means Trump intends to use his market credibility to reassure investors, making the intention to cut rates seem less abrupt. But Warsh faces an especially prominent dilemma: the more vocally he criticizes Powell, the more he deviates from his consistent institutionalist image, and the more his credibility erodes. If he tries to remain neutral, he cannot meet Trump's expectations for "fire output". He is like a bejeweled dagger, glamorous and deadly, but also too precious to be easily tarnished.
The second category is the "loyalty choice"—Kevin Hassett. As the chairman of Trump's first-term White House Council of Economic Advisers and the main designer of the 2017 tax cut policy, Hassett's loyalty is unquestionable. He is a firm supporter of supply-side economics, highly consistent with Trump's economic philosophy. He even openly admits to having regular "lunches" with Powell to convey the White House's perspective, playing the role of a direct pressure channel. Choosing Hassett means choosing policy predictability and reliable execution. For him, the aforementioned "dilemma" seems less sharp, as market expectations of his independence are already low. He would likely not hesitate to criticize current policy. The risk is that a chairman lacking market credibility, widely seen as a purely political appointment, would have minimal positive guidance effect on the market, and might instead trigger more intense negative reactions by overly exposing the intent of political intervention. He is like a "loyal blade" without extra decoration, ensuring sharpness and obedience, but potentially scaring off the market with excessive brutality.
Regardless of who is ultimately chosen, the strategic intent is already clear: transforming the Fed chairman from an independent economic-technical bureaucrat to a "cabinet member" responsible for the president's political agenda. This fundamentally subverts the central bank operating paradigm established since the Volcker era.
The Twilight of Consensus: When Cornerstones Begin to Shake
The "shadow battle" is far from an isolated incident; it is a comprehensive challenge to the entire central bank independence consensus of the "post-Volcker era". The core of this consensus is that, for long-term economic stability, monetary policy decision-making power must be entrusted to an independent institution free from daily political turmoil. The success of this idea was a crucial premise for the global economy to operate during the relatively stable "Great Moderation" period over the past thirty years.
Now, this consensus is being eroded from multiple angles. On one side, there are attacks from legal and theoretical perspectives. For instance, supporters of the "Unitary Executive Theory" argue that the president, as the sole head of the executive branch, should have the right to dismiss all officials, including the Federal Reserve Chairman, without being restricted by laws that only allow removal "for cause". On the other hand, the broader "Project 2025" proposes more radical reforms, including limiting the Federal Reserve's scope of responsibility and even exploring the possibility of returning to the gold standard.
In this context, the "shadow chairman" strategy is more like a pathfinder, a stress test for dismantling the "high wall" of Federal Reserve independence. If successful, its chain reaction would be far-reaching. The most direct danger is reigniting inflation at a fragile moment when the US government debt has already reached 123% of GDP. Any premature or politically motivated interest rate cut could burn the massive efforts to curb inflation over the past years.
The deeper crisis lies in eroding the credibility of the US dollar. The dollar's status as the primary global reserve currency is not based on gold or any physical asset, but built on the absolute trust of global investors in the stability of US institutions and the "risk-free" nature of US government bonds. The core of this trust precisely lies in an independent, predictable Federal Reserve with price stability as its primary objective.
As former Treasury Secretary Lawrence Summers has repeatedly warned, any weakening of central bank independence will ultimately come at the cost of higher long-term interest rates, as global investors will demand a higher "risk premium" to compensate for the increasing political uncertainty in the United States. This would create a terrible vicious cycle: massive debt requires low interest rates -> political pressure erodes central bank independence -> damaged independence leads to credibility decline -> credibility decline pushes up long-term interest rates -> higher interest rates exacerbate debt problems.
A Gaze at the Endgame
History never simply repeats, but always rhymes surprisingly. Today, as we gaze at this "shadow battle" surrounding the Federal Reserve, we hear the historical echoes reverberating through the corridors of the Eccles Building half a century ago.
This time, however, the stage is larger, the stakes are higher, and the weapons are more advanced. It is no longer a power game confined to Washington, but an institutional subversion broadcast globally through modern media and financial instruments. Ultimately, what the market needs to price is not just inflation and employment data, but how much commitment a country has left to its most core economic institutions.
The ghost of Arthur Burns may never have left. He is an eternal warning, reminding people how fragile those seemingly indestructible institutional cornerstones can be in the face of immense power temptations. When the lighthouse guarding the global financial order begins to sway in the political storm, every traveler on this sea should feel a chill.
