President Donald Trump’s public feud with Federal Reserve Chair Jerome Powell this week has told us one thing: the current administration has checked everything on its list, except borrowing rate cuts.
Trump does not like Powell, he made that abundantly clear before his return to the White House earlier this year. Maybe, just maybe, he could rush the Fed chair out of the central bank. But does he have to? Not quite.
On one hand, Trump believes he has done good by the markets, and it is Powell’s stubborn stance that is causing a bloodbath. On the other, Powell, making his case for no action using strong job and inflation markets, sees no reason to cut rates. And on that front, the latter could be right to pause rate cuts.
Markets tumble, blame is on Trump vs Powell
All major US stock indexes fell sharply on Monday, led by declines in the tech-heavy “Magnificent Seven” group of stocks. The dollar index weakened to a three-year low of 98.3, while gold surged to a record high of $3,490 per ounce.
Americans want the Fed to remain independent, and a threat to its operations, even from Trump, is a threat to national security. White House economic adviser Kevin Hassett added that the administration would “continue to study” the possibility of replacing the Fed chair.
Can they? Yes, but the chances are slimmer than a cling film sheet.
Powell’s job security is legally protected
Powell, whom Trump nominated to the top Fed position in 2017, is legally shielded from dismissal under the Federal Reserve Act of 1913. The law grants Board of Governors members 14-year terms and stipulates they can only be removed “for cause,” a standard understood to mean misconduct, not policy disagreements.
No president has ever attempted to do so, and legal observers say that any such move by Trump would almost certainly prompt a constitutional showdown, likely ending up before the US Supreme Court.
“I put the odds around zero,” one Wall Street strategist told reporters, arguing that even discussing Powell’s removal was already damaging enough. “Firing Powell would be a body slam to Treasuries and the dollar.”
But, it does seem, although in a very small scope, that President Trump wants the USD to dip, probably to help industries buy raw materials at more affordable prices.
All he has done so far, the tariffs, the war with China, the attention to the gold at Fort Knox, and a strategic crypto reserve, point towards a dollar devaluation. The only thing standing in his way is unchanged rate cuts, and that could be why he is furious with Powell.
A chief investment officer at a major quant fund pegged the odds of Trump finding a way to “fire” Powell at 50/50, suggesting Trump could see political benefits either way.
“If there’s a recession, he can blame Biden and Powell. If there’s not, he takes the credit,” the executive said. “Markets move on surprise. And right now, the talk of firing is doing more damage than the reality probably would.”
Risks of replacing Powell more than the benefits
Some economic experts argue that the fallout from removing Powell would likely outweigh any short-term gains. Ending the Fed’s independence could start a lasting repricing of US assets. Stock valuations could fall, bond term premiums could rise, and inflation expectations could become more volatile, eroding investor confidence in American fiscal stewardship.
Even if Powell remained in place, the constant eye-poking, digging and bashing of the Fed’s authority might prove just as harmful.
Investors are already dropping stocks from their portfolios, and countries have started selling US treasury bonds. One way to increase the number of exit positions even further is to say how much you want to fire “Mr. Too Late.”
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