President Donald Trump has denied he is planning to fire Federal Reserve chairman Jerome H. Powell. Photo / Getty Images
President Donald Trump has denied that he is planning to fire Federal Reserve chairman Jerome H. Powell, a day after asking Republican lawmakers at the White House whether he should remove the central bank chief.
Trump asked GOP lawmakers for their opinion on firing the Fed chief, which they backed, he told reporters. Two people familiar with the meeting – one of them a senior administration official, both speaking on the condition of anonymity to discuss a private meeting – said Trump indicated he was likely to move ahead with the firing. But when pressed today, Trump called reports he is planning to fire Powell “not true”.
“We’re not planning on doing anything,” Trump said to reporters. “I don’t rule out anything, but I think it’s highly unlikely – unless he has to leave for fraud.”
The reversal came as Trump faced mounting pressure from Republicans on several fronts – including his administration’s refusal to release files related to deceased sex offender Jeffrey Epstein. House Republicans had come to the White House for a meeting on pending cryptocurrency legislation that some of the lawmakers had concerns about, but the discussion veered into other matters, including firing Powell.
Stocks initially sank on the news of a potential firing, but they rebounded after Trump’s denial. The Dow Jones Industrial Average abruptly lost more than 300 points, before recovering.
It remains to be seen whether Trump will follow through on the threat to fire Powell, a frequent target for the President. Trump has attacked Powell repeatedly, arguing lower rates would make it easier for the United States to finance ballooning deficits.
Some administration officials appear eager for Trump to act. Bill Pulte, a federal housing regulator who has spent weeks attacking Powell and calling for him to resign, gave Trump a draft letter to fire the Fed chief earlier this week, according to a senior administration official, who spoke on the condition of anonymity to describe the private encounter.
Firing a sitting Fed chairperson would be an unprecedented move and probably self-defeating. Investors, economists and lawmakers warn it would rattle confidence in the Fed’s independence and its commitment to fighting inflation, pushing interest rates higher as investors demand greater returns for the added risk of holding US assets.
“Playing around with the Fed can often have adverse consequences of the absolute opposite of what you might be hoping for,” said JPMorgan Chase chief executive Jamie Dimon, speaking to reporters yesterday. “It is important they be independent.”
Congress structured the Fed to be insulated from short-term political pressure. That’s because presidents and other elected officials often prefer lower interest rates to spur immediate growth, even if it risks higher inflation down the line, which could ultimately harm the broader economy.
A large body of economic research shows central banks that function independently tend to have the best outcomes for their countries.
“If you want low inflation and a rapidly growing economy, you want to have an independent Fed,” said Douglas Holtz-Eakin, who was chief economist for President George W. Bush’s Council of Economic Advisers and is president of the American Action Forum, a conservative-leaning think tank.
While Trump has long toyed with the idea of seeking to fire the Fed chairman, today’s episode went beyond any of his prior threats. Meanwhile, Trump suggested he could attempt to remove Powell for cause, arguing the Fed spent too much money on a massive renovation of its offices in Washington.
The project, which aims to create a modern campus for the central bank along the National Mall, has been plagued by cost overruns fuelled at least in part by an increase in the costs for building materials coming out of the pandemic. The price tag for the project has swelled to nearly US$2.5 billion ($4.2b), up from an estimate of US$1.9b before the pandemic, which triggered a jump in the price of steel, cement and other materials, the Fed has said.
The Supreme Court signalled recently that Trump couldn’t fire Powell because of a policy dispute, such as over interest rates, but only for cause, generally interpreted to mean some form of malfeasance or dereliction of duty. Fed watchers say the criticism about the renovations reflects a thinly veiled effort to add to a months-long pressure campaign against the Fed. But they acknowledge it could provide a potential legal justification for Powell’s removal.
In the past, Trump has stopped short of seeking Powell’s ouster after advisers convinced him that he lacked the authority and that dislodging a sitting Fed chief could roil markets.
The Fed’s short-term benchmark rate influences what millions of consumers pay for mortgages and other types of loans. Specifically, Trump says he wants the Fed to cut rates by as much as 3 percentage points to reduce the cost of financing federal deficits.
Central banks typically don’t dramatically slash rates except in an emergency. After cutting rates by a full percentage point between September and December, the Fed is in an extended pause mode and isn’t expected to resume rate cuts until September at the earliest.
Powell has insisted he won’t leave before his term as chairman expires in May. Though past chairpersons typically don’t overlap with their successors, Powell could elect to remain on the Fed’s seven-member board until 2028.
Trump’s attacks on the Fed come as he is preparing to name Powell’s successor as early as this month, looking to install a more closely aligned central bank chief. Kevin Hassett, the White House’s top economic adviser, is emerging as the frontrunner, according to people who have discussed the matter with White House officials who spoke on the condition of anonymity to disclose private conversations.
The selection process remains fluid, with several contenders, but Hassett – who leads the National Economic Council – was a key economic adviser during Trump’s first term, making him one of the few advisers who has remained loyal to the President while staying in his good graces.
Hassett faces competition for the job from former Fed governor Kevin Warsh, Treasury Secretary Scott Bessent and Fed governor Christopher Waller.
During Trump’s extended comments about the Fed today, he appeared to forget he initially appointed Powell to serve as Fed chairman during his first term as President, falsely blaming President Joe Biden for placing him into the position. Trump nominated Powell to serve as Fed chairman in November 2017 and Powell took office in February 2018. Biden renominated Powell to the position and he was sworn in for a second four-year term as chairman in May 2022.
The Fed’s independence from political pressure, though written into law, wasn’t firmly established until a 1951 standoff with President Harry S. Truman, when the Treasury-Fed Accord affirmed the central bank’s authority to set interest rates free from political interference.
Two decades later, President Richard M. Nixon took a different approach – privately pressuring Fed chairman Arthur Burns to keep rates low before the 1972 election. Aides even leaked false, negative stories in the press to pressure Burns, who ultimately complied. The move helped Nixon politically but contributed to the runaway inflation of the 1970s that later forced painful rate hikes.
Andrew Ackerman covers the way Washington oversees Wall Street.