President Donald Trump has spent months attacking Federal Reserve Chairman Jerome Powell for not lowering interest rates faster. While Trump is not the first president to clash with the Fed chair on monetary policy, he has gone further by threatening to fire Powell and pressuring him to resign. Trump’s main complaint is that the Fed has kept its benchmark interest rate between 4.25% and 4.50%.
The central bank has resisted calls to lower the rate, which would spur economic growth by reducing borrowing costs, in order to control inflation. Trump argues the rate should be as low as 1%. The president began ramping up his attacks in April, calling Powell “a major loser” and “numbskull” whose “termination cannot come fast enough.” Trump has made conflicting remarks about whether he intends to fire Powell.
Last week, he asked Republican lawmakers for their opinion on the matter. Other White House officials have joined in criticizing Powell. Office of Management and Budget Director Russell Vought accused Powell of mishandling the $2.5 billion renovation of the Fed’s headquarters.
Treasury Secretary Scott Bessent said the Fed has a “persistent mandate creep into areas beyond its core mission.”
Under the Federal Reserve Act, the president can only remove the Fed chair “for cause,” meaning proof of corruption or malfeasance. A 1935 Supreme Court ruling further insulated the Fed from political pressure.
Trump’s criticism of Fed policies
David Wilcox, a senior fellow at the Peterson Institute for International Economics, said the administration seems to be focusing on the Fed’s renovation project to create a pretext to fire Powell. “The drumbeat of criticism seems to be that Powell allegedly has mishandled this situation,” Wilcox said. In the past, presidents Lyndon B.
Johnson and Richard Nixon pressured the Fed chair to keep interest rates low. Some believe this stopped the Fed from raising rates in the 1970s, contributing to high inflation. If Trump removes Powell, it could hurt the stock market and confidence in the U.S. economy.
“It would probably be reflected in an increase in the expected inflation that’s built into borrowing rates,” Wilcox said. “It would be reflected in an increase in the risk premiums that are built into long-term Treasury rates.”
However, Trump may ultimately decide to keep Powell as a scapegoat for economic problems until his term expires next year. As a businessman, Trump also considers the stock market an important measure of success.
“The market is an important governor on his policies,” said Fed historian Mark Spindel. “He has a large constituency in the corporate sector.”