Trump vs. Powell: Fed Conflict Continues
Trump’s Fed gambit: A Retreat, For Now, But the Pressure Mounts
Donald Trump’s persistent efforts to oust Federal Reserve chair Jerome Powell appear to have hit a temporary roadblock, with the former President seemingly backing away from immediate dismissal. However, the underlying tension between the White House and the central bank remains, and Trump’s influence on monetary policy, even without direct control over Powell, is a looming concern.
Trump’s allies have been actively seeking a legal justification for Powell’s removal, a move that would likely face meaningful judicial scrutiny. While the Supreme Court, in a May ruling, affirmed a president’s broad authority to remove heads of autonomous agencies, it notably carved out an exception for the Fed chair and it’s policymakers, stating they can only be terminated “for cause.” This was widely interpreted as a signal to Trump to cease his attempts to dismiss Powell.
Undeterred,Trump and his supporters have reportedly focused on Powell’s handling of the costly renovation of the Fed’s headquarters. Representative Anna Paulina Luna recently urged the Justice Department to prosecute Powell for allegedly misleading Congress about the project’s escalating costs, which have ballooned from $1.9 billion to $2.5 billion. While questions about the renovation’s efficiency are valid, Trump and his allies’ pursuit of this avenue is widely seen as a politically motivated attempt to discredit Powell and the Fed. The Fed itself attributes the cost overruns to design changes, rising material and labor costs, and unforeseen issues like asbestos and toxic soil.
Trump’s recent visit to the Fed headquarters,the first by a President for anything other than a formal ceremony,underscored his desire to publicly pressure the central bank. Though, following the tour, Trump indicated a shift in strategy, stating that firing Powell would be “a big move” and unnecessary, expressing belief that Powell would “do the right thing” regarding interest rates. This suggests a temporary concession, at least for the moment, on the prospect of removing Powell before his term concludes.
This apparent détente,however,may be short-lived. Trump has a history of changing his mind, and reports suggest he had previously shown House Republicans a draft letter of dismissal. The upcoming end of the Fed’s next policy meeting on Wednesday presents an immediate opportunity for Trump to re-engage his pressure campaign. He has advocated for interest rates as low as one percent, a stark contrast to the Fed’s likely decision to hold its benchmark rate between 4.25 and 4.5 percent, given that inflation remains above the Fed’s two percent target and Trump’s own tariffs are contributing to price increases in some sectors.
While Trump may be holding off on attempting to dismiss Powell, he will soon have the chance to appoint a more amenable successor when Powell’s term ends.Still, the Fed’s monetary policy decisions are made by a twelve-member policy committee, not solely by the chair. A significant portion of this committee comprises officials appointed by previous administrations, and they are unlikely to easily capitulate to political pressure. As one former Fed economist noted, the Fed is committed to protecting its policy independence, though she also anticipates Trump will continue his “pressure campaign.” The future of the Fed’s autonomy and its ability to resist political influence remains a critical concern.