Post by : Meena Ariff

Photo: Reuters

Former U.S. President Donald Trump has once again turned the spotlight on Jerome Powell, the Chairman of the Federal Reserve, by sharply criticizing his performance and even hinting at the possibility of removing him. But later, Trump backed off and said it was “highly unlikely” that he would fire Powell—unless something serious like fraud occurred.

This latest episode unfolded just hours after Trump reportedly asked fellow Republican lawmakers whether he should fire Powell. When news of this discussion broke, financial markets reacted. Stock prices and the value of the dollar dipped briefly. However, they quickly bounced back when Trump softened his tone and downplayed the possibility of taking action.

A History of Clashes Between Trump and Powell

Trump has a long history of clashing with Powell, who plays a central role in controlling interest rates in the United States. Even though Trump himself nominated Powell to lead the Federal Reserve in 2017 during his first term, their relationship soon turned rocky.

Trump has repeatedly demanded that Powell lower interest rates to make it easier for people and businesses to borrow money. Lower rates often encourage spending and investment, which can boost the economy. However, Powell and the Federal Reserve have often taken a more cautious approach, choosing to keep rates higher to help fight inflation and keep prices stable.

In recent months, Trump’s comments have grown more personal. He has insulted Powell by calling him a “knucklehead” and said he was “doing a lousy job.” Still, despite these strong words, Trump admitted at the White House this week that he had only revisited the idea of firing Powell, but wasn’t planning to do it.
When asked if he was ruling out the idea, Trump replied, “It’s highly unlikely unless he has to leave for fraud.”

Fed Property Renovation Becomes a New Target

Some of Trump’s allies have joined the attack by accusing Powell of mismanaging a renovation project involving Federal Reserve buildings. The project, located in Washington, D.C., has faced large cost increases. It was originally estimated at $2 billion.

Last week, budget director Russell Vought requested an investigation into why the costs went up so much. Trump said earlier this week that this situation might be considered a fireable offense, adding more pressure on Powell.

Some analysts believe that this shift in focus—from interest rate policy to financial management of federal property—shows that Trump’s team may be trying to build a case for Powell’s removal.

Experts at a major investment bank said that while it's unclear whether Trump will act, the recent actions suggest the risk of Powell being removed is increasing.

Can the President Remove the Fed Chair?

The Federal Reserve is meant to be an independent body that is not directly controlled by the President. It was created by Congress to help guide the U.S. economy without political interference. The Fed Chair, like Powell, serves a four-year term and cannot be fired over disagreements about policy decisions.

However, under federal law, the President can remove a Federal Reserve governor “for cause,” which usually means serious misconduct, not just policy disagreements. Powell’s current term as Chairman ends in May next year, but he can stay on as a Fed governor until 2028 if he chooses.

Powell has said he plans to complete his term and has pushed back against the idea that the President can fire him just because they disagree on interest rates.

Fed Defends Building Project

In response to the recent attacks, the Federal Reserve updated its website to provide more details about the renovation project. The central bank said the increased costs were due to unexpected problems such as higher-than-expected levels of asbestos in the buildings. It also said the renovations will eventually help cut costs by letting the Fed consolidate its operations.

Still, the criticism from Trump’s side hasn’t stopped. Even during Trump’s first term, he often criticized Powell, especially when the Fed raised interest rates. Each time Trump talked about firing Powell, concerns from investors and markets seemed to force him to back down. This time appears to be no different.
Rumors and Reactions

On Tuesday, Congresswoman Anna Paulina Luna, a Republican from Florida, posted on social media that Powell’s firing was “imminent.” Other Trump allies have recently hinted that Powell might step down or suggested he should be removed.

A senior official close to Trump confirmed that the former President had told Republicans that Powell might be fired soon.
This growing political pressure on the Federal Reserve is creating concern across the global financial system, which is already facing stress from Trump’s earlier trade policies and the slowdown in the U.S. economy.

Slowing Economy Adds to Tensions

The U.S. economy is not as strong as it was a year ago. Many experts blame the pressure from tariffs and trade tensions created during Trump’s presidency. These trade wars made some imported goods more expensive and raised worries about inflation.

At the same time, the Federal Reserve plays a major role in setting interest rates, which affect loans, credit cards, mortgages, and business investments across the country. Right now, the Fed’s key interest rate is about 4.3%, which is lower than last year. But Trump says it’s still not low enough.

Other central banks, such as those in Europe and the United Kingdom, have lowered their rates more quickly, and Trump has pointed this out to criticize Powell’s decisions.

Powell, however, says the Fed needs to be careful. Lowering rates too fast could lead to higher prices, especially because of the ongoing impact of tariffs.

Warnings from Business Leaders

Many economists and business leaders have said that interfering with the independence of the Federal Reserve could be dangerous. They say it could harm investor confidence and lead to more problems for the economy.

Jamie Dimon, the CEO of America’s largest bank, recently said that the independence of the Fed is “absolutely critical.” He warned that trying to pressure the Fed could lead to the opposite of what the government wants.

Search for a Replacement?

Despite Trump saying he is not planning to fire Powell, talk of a replacement is already happening behind the scenes. Treasury Secretary Scott Bessent said a formal process is underway to find someone new for the job. He compared Trump’s criticism to “working the refs,” a sports term that means pressuring officials to make calls in your favor.

Trump has named Bessent as a possible candidate. Other names being considered include Kevin Hassett, who currently leads the National Economic Council, and economist Kevin Warsh, who has long been favored by conservative groups.

It’s worth remembering that Trump first picked Powell for the Fed job in 2017, replacing Janet Yellen, who was appointed by President Barack Obama. Then, in 2021, President Joe Biden extended Powell’s term, showing bipartisan support for his leadership at the time.

What Happens Next?

As the debate continues, Powell remains in his role, and the Fed continues to manage interest rates and inflation policies. Whether Trump will take the bold step of firing him remains to be seen.

For now, the situation has calmed a bit, but tensions between politics and central banking remain high. As the U.S. economy faces more uncertainty, the decisions made by both the President and the Fed could have major impacts, not just for Americans, but for global markets too.