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President Donald Trump expressed strong dissatisfaction with U.S. Federal Reserve Chair Jerome Powell on Thursday, criticizing his reluctance to reduce interest rates and hinting that he has the authority to terminate Powell’s position. This statement revives a contentious issue regarding the independence of the central bank and its susceptibility to political pressures.
During a press interaction in the Oval Office alongside Italian Prime Minister Giorgia Meloni, Trump remarked, “If I want him out, he’ll be out of there real fast, believe me,” clearly indicating his frustrations with Powell’s decisions.
Trump’s comments came soon after he made a post on his social media platform, urging Powell to implement a reduction in short-term interest rates and expressing that “Powell’s termination cannot come fast enough!”
It is important to note that Powell’s current term as chair extends through May 2026. Initially nominated by Trump in 2017, Powell was reappointed for another term in 2021 by President Joe Biden.
At a recent news conference, Powell asserted that he would not resign if requested by Trump, emphasizing that the independence of the Fed is legally protected. He stated, “We’re not removable except for cause. We serve very long terms, seemingly endless terms.”
Concerns Over Inflation and Tariffs
Trump’s criticism of Powell primarily revolves around his belief that there is minimal inflation in the economy. The Federal Reserve had raised interest rates significantly in 2022 and 2023 to manage inflation, which has since decreased from a peak of 9.1 percent last year to 2.4 percent recently. This decline brings inflation closer to the Fed’s target rate of two percent, and there had even been three rate cuts toward the end of the previous year.
However, Powell and other Fed officials plan to keep rates stable due to ongoing uncertainty linked to the extensive tariffs initiated by Trump, including a universal 10 percent import tax and a staggering 145 percent tariff on Chinese imports.
During a recent address in Chicago, Powell reaffirmed that the Fed will hold off on making any financial adjustments until there is greater clarity regarding the impact of these tariffs, which he cautioned could exacerbate inflationary pressures.
The notion of a politically independent Federal Reserve has been upheld for decades, particularly recalling the 1970s when political interference was believed to have worsened inflation by succumbing to demands from President Richard Nixon to maintain low interest rates leading up to the 1972 elections. Economic research suggests that independent central banks are more capable of controlling inflation as they can pursue unpopular measures like raising interest rates without being swayed by political considerations.
Wall Street investors generally favor a central bank that operates independently, yet the stock market did not show any significant reaction to Trump’s recent remarks.
Powell’s Commitment to Autonomy
Powell reiterated on Wednesday that the Federal Reserve intends to adhere strictly to its mandate, prioritizing the economic wellbeing of all Americans, regardless of political pressure. “That’s the only thing we’re ever going to do,” Powell stated, emphasizing their commitment to not being influenced by outside pressures.
In light of the tariffs, Powell reiterated the Fed’s focus on controlling inflation, which suggests maintaining elevated interest rates moving forward. Trump has criticized the ongoing rise in interest rates, attributing it to political maneuvering within the Federal Reserve.
While Trump’s administration has advocated for lower long-term rates, which would reduce borrowing costs for consumers, it is essential to recognize that the Fed primarily influences short-term rates and indirectly affects longer-term costs.
Currently, a significant case before the U.S. Supreme Court may alter presidential authority over top officials at independent agencies like the Fed. This case involves challenges to two firings from Trump’s presidency, with the justices reviewing the implications of these decisions.
Powell has acknowledged the case with caution, indicating that it might not directly apply to the Federal Reserve, as the court historically differentiates the central bank from other entities. The Trump administration has argued that the case is not relevant to the Fed.
Despite these tensions, Trump mentioned in a 2024 campaign interview that he would allow Powell to complete his term as chair. Additionally, Trump’s economic adviser, Kevin Hassett, stated in a recent interview that “there’s not going to be any political coercion over the Fed, for sure.”
As Powell navigates his role during Trump’s second term, he faces a challenging environment marked by a low unemployment rate yet looming inflation risks tied to the president’s tariffs. The combination of an unstable economy and Trump’s criticism places Powell in a difficult position, as he strives to fulfill his mandate of stabilizing prices and maximizing employment.
Source
www.cbc.ca