President Trump and Federal Reserve Chairman Jerome Powell are facing how central banks respond to the economic consequences of the White House trade war.
While Trump’s tariffs promise even more upward pressure on prices, Trump and Powell seem to be trapped on the collision course as they maintain a pause in rate cuts in response to sticky inflation.
Powell hears warnings about the risk of Trump’s tariff policy, and the president is calling for interest rate cuts and threatens to fire the Fed’s chief.
Trump spoke on multiple occasions on Thursday about his desire to remove Powell from his position as chairman of the Fed’s board, which could be illegal in accordance with the 90-year-old Supreme Court ruling.
“Powell’s ending can’t come quickly enough!” Trump wrote in an early morning social media post. He accused the Fed chief of delaying interest rates and encouraging him to do so.
Later that day, Trump highlighted his ability to fire Powell despite the chief’s claim that he could not be fired and not leaving by the end of his term.
“If I wanted him, he’d come out of there really quickly, trust me,” Trump said.
“Yeah, he’s going to leave. I ask him and he’ll come out of there,” Trump told reporters. “I don’t think he’s at work. He’s too late. It’s always too late. And I’m not happy with him. I let him know that.”
Trump has reportedly been debating about trying to fire Powell for months, but experts told Hill he thinks such a move is too destructive for Wall Street.
Steven Mylow, managing partner of Beacon Policy Advisor, told Hill on Thursday. “But you’re already beginning to see a discussion about preparing for his replacement.”
As “as ” [Treasury Secretary Scott] Bessent proposed in October before the election and then retreated. [his replacement]. Usually, we announce the exchange a few months in advance just to prepare the market,” he said.
Investors also hope that Trump’s rage against Powell will be contained.
Traders largely ignored Trump’s threat on Thursday. This is because the stocks were mixed all over the place and did not respond significantly to the president’s comments.
The Dow Jones industrial average was closed on Thursday with a loss of 527 points. This is primarily due to a sharp decline in United Healthcare stocks following an unexpected revenue report.
The S&P 500 index rose 0.1%, while the Nasdaq composite fell 0.1% per day.
“I think Bescent is telling him to wait until Powell is no longer a chair,” Yaldeni Research president Ed Yaldeni told Hill.
Yaldeni said Powell “doesn’t intend to cut interest rates to respond to the tariff disruption Trump has made, and that the source of the president’s frustration was another manifestation of 10-year bond yields, which rose again yesterday after jumping two weeks ago in response to Trump’s “liberation day” tariff announcement.
Powell keeps his view that it essentially extends to male dogs, including Trump’s tariffs (taxes on many Chinese goods, cars and metals, and three-digit import tax on 10% general tariffs).
“The levels of tariff increases announced so far are significantly greater than expected,” he said at an event in Chicago on Wednesday. “The same could be true of economic impacts, including higher inflation and slower growth.”
Comments sent the securities market to Tailspin. The shares were sold significantly on Wednesday afternoon. This follows Thursday’s trading session, and has also begun to back up the US Treasury yields.
Powell said the economy is likely to be away from the Fed’s target inflation and minimal unemployment rates.
“I think we’ll probably be moving away from these goals for the balance this year and at least not to make any progress, and we’ll resume that progress as much as we can,” he said.
The Fed has long emphasized its institutional independence, despite experiencing several episodes in its history of being directly entangled with presidential politics.
Experts told Hill that the president cannot fire a governor from the federal board without fraud or another specific cause, but they said there is a legal gray area when it comes to demoting the Fed chair back to the level of the committee.
“It is not clear how we interpret the lack of explicit protection. [at the chair level]Sarah Binder, a political professor at George Washington University, told the Hill.
“Trump could threaten to demote Powell or fire him in the hopes of retiring Powell from his chair, but there’s no legal reason why Trump could fire him from the board,” she said.
If Trump asks for Powell to be removed and raises another board member to chair position, the governor will still need to work to build a committee consensus rather than automatically submitting the president’s bid.
“That person is the chairman of the committee. They have to convince other members of the committee to do it in order to get him or her whatever they want,” former Federal Reserve Vice-Chairman Donald Kohn told Hill. “It will create a lot of uncertainty about how strong the Fed’s leadership will be.”
Trump’s authority to fire officials he dislikes has been challenged in multiple trials, some of which could reach the Supreme Court.
Trump’s Democrat firing on the National Labor Relations Commission, the Federal Bureau of Labor Relations and the Merit System Protection Commission has posed federal legal challenges. The firing of two Democrats at the Federal Trade Commission (FTC) has also been challenged in court.
Democrats filed a brief this week against Trump’s FTC shooting, but they say it’s illegal.
Wherever the court descends on Trump’s firing authorities, the decision could involve a potential pink slip issued by the Fed.
“This will bring us back to the ultimate Supreme Court case that’s coming,” Binder said.
Former Treasury Secretary Larry Summers said on Thursday there was between 10-50% chance that Trump’s tariff policies could lead to a massive financial uprising that rivaled what led to the resignation of former British Prime Minister Liz Truss.
“We’re probably under 50%, but certainly more than 10% risks, but in the coming months, the US may have a Liz-Truss moment,” he said.
Yaldeni told Hill that Bescent might be appointed to replace Powell with a Fed chair. Mirow said he could be former Fed governor Kevin Warsh.
“Trump is looking for two things: someone who intends to follow what he wants and someone who appears to be part of the central casting. The question is whether Warsh is comfortable enough at a lower rate despite persisting inflation,” Myrow said.
