President Trump and Federal Reserve Chair Jerome Powell are facing off over how the central bank will respond to the economic impact of the White House’s trade war.
Trump and Powell appear to be locked on a collision course with each other as the Fed has maintained a pause in rate cuts in response to sticky inflation while Trump’s tariffs promise additional upward pressure on prices.
As Powell sounds the alarm over the stagflationary risks of Trump’s tariff policies, the president is calling for interest rate cuts and threatening to fire the Fed chief.
Trump spoke multiple times on Thursday about his desire to remove Powell from his position as chair of the Fed’s board of governors, which could be illegal as per a 90-year-old Supreme Court ruling.
“Powell’s termination cannot come fast enough!” Trump wrote in an early morning social media post, in which he accused the Fed chief of being late to cut interest rates and exhorting him to do so.
Later in the day, Trump stressed his ability to fire Powell despite the Fed chief’s insistence that he cannot be fired and will not leave before the end of his term.
“If I want him out, he’ll be out of there real fast, believe me,” Trump said.
“Oh, he’ll leave. If I ask him to, he’ll be out of there,” Trump told reporters. “I don’t think he’s doing the job. He’s too late. Always too late. A little slow. And I’m not happy with him. I let him know it.”
While Trump has reportedly been having discussions about trying to fire Powell for months, experts told The Hill they think such a move would be too disruptive to Wall Street, which has already suffered through a massive tariff-driven sell-off.
“It will spook financial markets too much to terminate him,” Stephen Myrow, managing partner of Beacon Policy Advisors, told The Hill on Thursday. “But you’ve already started to see discussion of preparing for his replacement.”
“As [Treasury Secretary Scott] Bessent suggested — and then backed off from — in October before the election, I could see a situation where they announce [his replacement]. Normally, you announce the replacement some months ahead of time just to prepare the market,” he said.
Investors also expect Trump’s anger at Powell to be contained.
Traders largely ignored Trump’s threats Thursday, as stocks closed mixed across the board and did not react noticeably to the president’s comments.
The Dow Jones Industrial Average closed with a loss of 527 points Thursday, largely due to a steep decline in UnitedHealthcare shares following an unexpectedly poor earnings report.
The S&P 500 index rose 0.1 percent, and the Nasdaq composite fell 0.1 percent on the day.
“I suspect that Bessent is going to tell him to just wait until Powell is no longer the chair,” Ed Yardeni, president of Yardeni Research, told The Hill.
Yardeni said he thought Powell had no intention of lowering interest rates “to accommodate the tariff mess that Trump has made” and that the source of the president’s frustration was another uptick in the 10-year bond yield, which rose again yesterday after jumping up two weeks ago in response to Trump’s “Liberation Day” tariff announcement.
Powell has made no secret of his view that Trump’s tariffs — spanning triple-digit import taxes on many Chinese goods, taxes on cars and metals, and a 10-percent general tariff — are stagflationary in nature.
“The level of the tariff increases announced so far is significantly larger than anticipated,” he said Wednesday at an event in Chicago. “The same is likely to be true of the economic effects, which will include higher inflation and slower growth.”
The comments sent securities markets into a tailspin. Stocks sold off sharply Wednesday afternoon, a rout that continued into the Thursday trading session, and yields on U.S. Treasurys started to tick back up as well.
The economy will likely be moving away from the Fed’s target inflation rate of 2 percent and minimal unemployment, Powell said.
“I do think we’ll be moving away from those goals, probably for the balance of this year, and then — or at least not making any progress — and then we’ll resume that progress as we can,” he said.
The Fed has long stressed its institutional independence despite having gone through some episodes in its history of getting more directly entangled with presidential politics.
While experts told The Hill that presidents can’t fire governors from the Fed’s board without misconduct or another specific cause, they said there’s a legal gray area when it comes to the demotion of the Fed chair back to the board level.
“It’s not clear how one interprets the lack of an explicit protection [at the chair level],” Sarah Binder, a professor of politics at George Washington University, told The Hill.
“Trump could demote Powell or threaten to fire him in the hopes of getting Powell to step down from chair, but there’s no statutory reason that Trump could fire him from the board,” she said.
If Trump does seek Powell’s removal and raises another board member to the chair position, that governor would still need to work to build consensus on the committee rather than automatically doing the president’s bidding.
“That person is the chair of a committee. In order to get whatever he or she might want, they’d have to convince other members of the committee to do it,” former Fed Vice Chair Donald Kohn told The Hill. “It would create a lot of uncertainty about how strong the leadership of the Fed would be.”
Trump’s authority to fire officials he doesn’t like is being challenged in multiple court cases, some of which could make it to the Supreme Court.
Trump’s firings of Democrats at the National Labor Relations Board, the Federal Labor Relations Authority, and the Merit Systems Protection Board have resulted in federal legal challenges. The president’s firing of two Democrats at the Federal Trade Commission (FTC) has also been challenged in court.
Democratic lawmakers filed a brief this week opposing Trump’s FTC firing, which they say is illegal.
Wherever the courts come down on Trump’s firing authority, the decisions could pertain to any potential pink slips issued at the Fed.
“This gets us back to the ultimate Supreme Court cases that are coming,” Binder said, “about whether he can fire FTC commissioners, National Labor Relations Board members, and others. That’s the analogy here.”
Former Treasury Secretary Larry Summers said Thursday there was between a 10 and 50 percent chance that Trump’s tariff policies result in a large-scale financial revolt comparable to the one that led to the resignation of former U.K. Prime Minister Liz Truss.
“We are running a risk that is probably below 50 percent but certainly greater than 10 percent that in the next several months the United States will have a Liz Truss moment,” he said.
Yardeni told The Hill he thought Bessent might be nominated to replace Powell as Fed chair. Myrow said it could be Kevin Warsh, a former Fed governor.
“Trump is looking for two things — someone who’s going to follow what he wants and someone who looks the part of central casting. The question is whether Warsh will be comfortable enough following through lowering rates even as inflation is persistent,” Myrow said.