President Trump has stepped back from his suggestion of firing Federal Reserve Chairman Jerome Powell, at least for now.
Last week, tensions seemed to peak when Trump hinted to Powell and Republican lawmakers about possible changes at the Fed. However, he has since reconsidered, with various officials warning about the potential repercussions on the market if he were to follow through.
Interestingly, Trump coined a term—“Wall Street Octopus Trade”—along with an acronym, “Trump Always Drops Chickens,” implying he might have used it as leverage against his own tariffs. Although he initially toyed with the idea of ousting Powell, he ultimately held back.
Describing the moment, an insider noted, “This feels akin to a ‘Day of Liberation’—a significant moment in capital markets. Treasury Secretary Scott Bessent mentioned to Trump, ‘We could face backlash from this,’ suggesting that managing Powell’s position is crucial.”
During a meeting, Trump reportedly told Republicans he was contemplating firing Powell, which momentarily rattled the market and caused the S&P 500 to dip. He acknowledged it was “unlikely” but insisted nothing was off the table regarding Powell’s future.
Experts have expressed caution, suggesting that while Trump might be frustrated, he does not have the unilateral power to dismiss Powell. The Federal Reserve’s independence is vital for maintaining America’s investment appeal globally—any attempts by the president to fire a Fed official might not sit well with investors.
Former Treasury Secretary Lawrence Summers also raised concerns regarding the ongoing influence Trump might exert on Powell. He argued that undermining Powell’s independence would harm the efficacy of the Federal Reserve’s monetary policy.
This week, Trump does not expect Powell to resign before his term ends in May, though he criticized the current Fed chair for not adjusting interest rates amidst uncertainty surrounding his tariffs.
Trump commented, “I think he’s doing poorly, but he’s leaving soon enough anyway—just eight months left,” signaling perhaps a mixture of frustration and resignation.
Bessent defended Powell on a morning program, saying he sees no reason for him to resign right now and suggested he should complete his term unless he chooses otherwise.
Previous Fed Chairs, Ben Bernanke and Janet Yellen, have also spoken out against Trump’s pressure tactics and warned that this could contribute to rising inflation.
For months, Trump has seemingly pressured Powell to raise interest rates while also criticizing him publicly and in speeches, creating a confusing atmosphere around the Fed’s decisions.
Analysts pointed out that Trump’s aggressive stance may have wrongly suggested that firing Powell would not lead to significant turmoil. They warned that doing so would likely add further confusion and instability in the bond market.
Trump has urged the Fed to act only with available funds during the economic crisis, emphasizing he feels some actions are “too late” now, which he believes adversely affects potential homebuyers.
A long-time lobbyist commented that Trump’s threats towards Powell seem to be a mix of testing the waters for potential backlash and a strong desire to see interest rates lowered.
Rep. Jim Himes cautioned that the markets could react negatively if a White House insider sought to remove Powell, and while the president denied such intentions, discussions on the topic have remained high.
Trump claimed no one needed to explain to him the negative consequences of firing Powell, asserting, “If it weren’t for me, the market wouldn’t be at record highs; it might have crashed!” He emphasized that he alone understands the implications of these actions.
Sources close to Trump indicated that Wall Street has been uneasy regarding his threats against Powell, suggesting this has resonated with the president.
Ultimately, while common sense appeared to prevail for a moment, insiders believe Trump will likely continue utilizing Powell as a talking point, regardless of the day’s agenda.
Following Trump’s retreat, the stock market responded positively, with the S&P 500 hitting another all-time high on Tuesday. The Dow Jones industrial average experienced a 0.4% increase at market close, while the Nasdaq composite saw a 0.4% decline, marking its first loss in seven days.
