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Concerns are rising regarding U.S. President Donald Trump’s critical stance towards Federal Reserve Chair Jerome Powell, with speculation that he may attempt to remove Powell from his position. However, experts warn that such a drastic action might not achieve Trump’s desired outcome of lowering interest rates.
According to a number of economists, dismissing Powell could merely initiate a broader campaign against the Fed’s autonomy. Paul Ashworth, the chief North America economist at Capital Economics, suggested that if Trump is determined to decrease interest rates, he would likely also need to replace the other six members of the Federal Reserve Board. This could lead to more significant adverse reactions from the financial markets, potentially causing the dollar to depreciate and long-term interest rates to rise.
Powell holds dual roles as chair of the board of governors and the Federal Open Market Committee (FOMC), which is responsible for establishing interest rate policies. Ashworth noted that while FOMC members typically select the president-appointed board chair to lead their discussions, they might choose to defy Trump’s authority by appointing an alternative leader for the rate-setting committee. Additionally, JPMorgan’s chief U.S. economist, Michael Feroli, indicated that the historical precedence of respecting leadership roles often outweighs the formal aspects of the position.
Peter Sidorov, a senior economist at Deutsche Bank, reinforced the notion that even if Trump appointed a new Fed chair, other committee members might resist pressures to align with his economic agenda. He pointed out that monetary policy decisions require a majority vote within the FOMC, meaning a potential ousting of Powell could incite increased dissent against any push for more lenient policies from a new appointee.
Recently, Trump has publicly criticized Powell, labeling him “a major loser” on social media, which has unsettled financial markets. White House economic advisor Kevin Hassett mentioned that discussions are ongoing about the possibility of ousting Powell.
It remains uncertain whether Trump possesses the legal authority to remove Powell before his term concludes next year. Powell has previously asserted that presidential dismissal may not be legally permissible. The Supreme Court is set to address an appeal regarding Trump’s attempts to fire board members of other federal entities, which could provide crucial insights into his capabilities regarding the Fed.
The ongoing debate about potential changes within the Fed, coupled with the uncertainty surrounding tariffs, appears to have negatively impacted investor confidence in the U.S. market. Recently, there have been declines in U.S. stocks, bonds, and the value of the dollar.
Professionals on Wall Street express concerns that alterations in the Fed’s leadership could trigger further market volatility and heighten fears of inflation. Feroli remarked that a diminished independence of the Fed would elevate risks associated with inflation, already fueled by tariffs and rising inflation expectations. He noted that the adverse consequences of such changes have not deterred the president from pursuing actions against the Fed’s autonomy.
— CNBC’s Michael Bloom contributed reporting.
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