"Beat the enemy with his own weapon." Donald Trump intends to force the Federal Reserve to lower rates to 1% and stimulate the U.S. economy by the end of his presidency. What happens next – whether it is uncontrollable inflation or a double recession – is of little concern. "After me, the flood." Jerome Powell has a response for the White House occupant. He is playing a subtle game, making EUR/USD and all markets tense.

The U.S. dollar may react sharply to the outcomes of the last FOMC meeting in 2025, or it may not react at all. The base scenario involves a "hawkish" cut, where, after a rate decrease in federal funds, Jerome Powell indicates the Fed's intention to maintain a prolonged pause. This would be good news for the greenback. However, the USD index is not rising, despite the base scenario.

Perhaps the reason lies in the soon-to-be change of chair? The White House's Kevin Hassett will undoubtedly seek to implement Trump's plan to lower the rate to 1%. Thus, the market shows little interest in Jerome Powell's outgoing speech. Investors are looking for prospects for long-term borrowing costs. Here arises an intriguing inconsistency.

Dynamics of the Fed Rate and U.S. Bond Yields

Currently, U.S. Treasury yields are higher than at the start of the Fed's monetary expansion cycle. Typically, the opposite occurs: a decrease in the federal funds rate pulls down bond market rates. However, the current decoupling suggests that investors do not expect aggressive monetary expansion. In their view, borrowing costs will stabilize at 3.25% by the end of the cycle. Is the idea of appointing Kevin Hassett as Fed Chairman doomed to fail?

Trump employs the principle of "divide and conquer." He floods the FOMC with "doves," encouraging division within the Committee. However, Powell also encourages dissent. He uses the enemy's weapon to achieve his goal – preserving the central bank's independence. Indeed, if FOMC members become accustomed to dissent, they will express it even with the new chairman. The chances of Hassett aggressively lowering rates are decreasing.

Powell has not yet decided whether to leave the FOMC permanently or retain his seat as a regular governor. His predecessors opted for the former, but now much more is at stake – independence. If the current Fed head remains, it will be a kind of vote of no confidence in his successor. In addition to "hawks" and "doves," the Committee will also include a new character – the lame duck. This figure will put obstacles in Trump's path.

Technically, on the daily chart, the bulls' inability to break the resistance at the upper boundary of the fair value range of 1.1540-1.1665 for the second time indicates their weakness. The risks of a price decline to 1.1585 remain. A focus on short-term selling followed by a reversal seems prudent.