President Donald Trump’s recent public disparagement of Federal Reserve Chair Jerome Powell has raised alarms that the president may attempt to dismiss the central bank leader. However, such a historically and legally dubious action may not yield the changes in monetary policy that Trump seeks.
In a note released on Monday, Paul Ashworth, chief North America economist at Capital Economics, asserted that terminating Powell may not result in the desired rate cuts Trump is advocating for.
“Likely, firing Powell would merely represent the first step toward undermining the Fed’s autonomy. If Trump aims to lower interest rates, he would also have to remove the other six members of the Fed Board, which could provoke a significant market response, weakening the dollar and increasing rates on the long end of the yield curve,” Ashworth warned.
Powell leads both the Fed Board of Governors and the Federal Open Market Committee, which determines interest rate policy. Ashworth noted that while FOMC members typically support a chair appointed by the president, they could potentially select someone else to lead the committee if they choose to defy Trump. Moreover, Michael Feroli, JPMorgan’s chief U.S. economist, mentioned that the authority of leadership largely stems not from the job’s mechanics but from historical respect.
Deutsche Bank’s senior economist, Peter Sidorov, reiterated that individual Fed members might resist a new leader’s directives if they believe Trump has overstepped his bounds.
“While the Fed Chair has substantial sway over the FOMC, monetary policy decisions are made by majority vote. Consequently, removing Powell could provoke increased opposition from other members against pressure to adopt looser policy,” Sidorov explained in a note to clients on Tuesday.
This conversation on Wall Street follows a series of Trump’s remarks disparaging Powell, including a social media post on Monday labeling the Fed Chair as “a major loser,” which sent ripples through financial markets. The White House’s economic adviser, Kevin Hassett, disclosed last week that the president and his advisors were considering options for removing the Fed Chair.
It remains uncertain whether Trump possesses the authority to dismiss Powell prior to the conclusion of his term as Board of Governors chair next year. Powell has expressed skepticism regarding the legality of a presidential termination. Additionally, the Supreme Court is poised to hear a case related to Trump’s previous firings of board members from other federal agencies, which could have implications for the Fed’s future.
Speculation about potential shifts at the Fed—coupled with persistent uncertainties surrounding tariffs—seems to have impacted investor confidence in the U.S. Recent weeks have seen declines in U.S. stocks, bonds, and the dollar.
Professionals on Wall Street are apprehensive that changes at the Fed may trigger further market sell-offs and exacerbate inflation fears.
“Any erosion of the Fed’s independence would introduce additional upward risks to an inflation outlook already influenced by rising tariffs and elevated inflation expectations,” Feroli warned in his note to clients.
“It has been hoped that these negative outcomes would discourage the president from threatening Fed independence, but thus far, he has often acted on his intentions,” he concluded.
— Reporting contributed by Finance Newso’s Michael Bloom.
