Why Trump wants to fire the "untouchable" Fed chairman Powell. Analysis
US President Donald Trump is preparing to dismiss Federal Reserve Chairman Jerome Powell, although he publicly denies this. The White House has long been in conflict with the head of the regulator over high interest rates, which Powell refuses to lower due to inflation. This confrontation is closely linked to both the political and economic life of the United States. How it develops and how it can end is in the material of Izvestia.
How Trump threatens Powell
• The conflict between Trump and Powell has been going on for almost as long as the latter has been head of the Fed. In 2017, Trump himself appointed the former deputy finance minister to this post, but soon began to criticize him because of his policy of raising interest rates, as many other US presidents had done before him. However, unlike his predecessors, Trump chose a harsher and more offensive style to criticize Powell, sometimes calling him crazy.
By the end of his first term, Trump began hinting at Powell's possible dismissal, but did not take concrete action to do so. After the re-election, the conflict between the president and the chairman of the Federal Reserve flared up with renewed vigor. Trump announced that he would not extend Powell's powers in 2026 and began to talk more often about the early resignation of the head of the regulator. The politician's rhetoric continued to get tougher — Trump did not hesitate to call the financier a stubborn ass and a dumbass.
• In July, the confrontation escalated with renewed vigor. Trump and his supporters began to criticize Powell not only for his monetary policy, but also for the renovation project of two buildings of the Fed headquarters in Washington. It grew to $2.5 billion, which is why Powell was accused of embezzlement and fraud. In response, he said he would bring in an inspector general to review the project, and at the same time denied reports from Trump supporters that the renovation of the headquarters would include marble trim and a rooftop garden.
• Against this background, Trump sent Powell the most threatening signal. The New York Times newspaper reported that the president gathered leading Republican lawmakers in the White House and announced his intention to dismiss the head of the Fed. Trump allegedly already drafted a letter of resignation and showed it to his party members, who approved the decision to resign. Commenting on the publication, Trump denied his intention to oust Powell, but suggested that he either resign himself due to cost overruns on repairs, or move to lower the interest rate.
Why is Trump at odds with Powell
• The conflict between Trump and Powell is embedded in the very system of monetary relations that exists in the United States. It would be beneficial for any head of state to have the Fed maintain a low key rate. It would allow the population and businesses to take out cheap loans, which, in turn, leads to increased consumption, increased production and reduced unemployment. The Fed's low interest rate also helps to reduce the cost of servicing government debt and reduce budget deficits.
• However, the low-interest policy has a downside. Cheaper money leads to higher inflation, lower yields on bank deposits and bonds. A high rate allows you to curb inflation and avoid overheating the economy when it is growing so fast that the population and businesses are not ready for it. The Fed's mission is to keep inflation at 2% by raising and reducing interest rates, contributing to moderate economic growth.
• This is an effective mechanism that has proven effective over the past decades, but the Fed's decisions do not have an immediate impact on the economy — it sometimes takes months for inflation to fall under the influence of a high interest rate. This is an adequate period for economics, but it can be excessively long for politics. This leads to a contradiction between the Fed and the executive branch, which wants to achieve quick results. In order for the White House not to exert excessive influence on the Fed, it is prohibited from firing the head of the regulator without good reason and demanding coordinated decisions from him.
• Currently, the Fed's rate remains at 4.25–4.5%, which was set on December 18, 2024. This marked the end of a downward cycle that lasted throughout the fall, while the election race was in full swing in the United States. Back in September, the rate was 5.25–5.5% — the Fed was thus struggling with high inflation, which exceeded 7% under the previous president Joe Biden.
• By the time Trump took office, inflation had dropped to 2.6%, and in May it was already 2.3%, almost approaching the target. However, since December, the Fed has not lowered the rate, and this irritates the head of the White House, who in his statements expressed the opinion that the rate should drop to 1%.
• Trump wants a reduction for a number of reasons. First, it will allow him to reduce government bond spending and reduce the budget deficit, which is one of the main goals of his policy. He especially needs this after the adoption of the "big, wonderful bill" (we wrote more about it here), which will greatly increase the US national debt in the coming years. Secondly, Trump wants to attract investments and increase production, which is necessary to replace imported goods, the flow of which will decrease due to the imposition of tariffs.
• Thirdly, the president suspects Powell of sympathizing with the Democrats, because the rate cut cycle just occurred during the election and could have influenced voters' sympathies in favor of the previous administration and Democratic candidate Kamala Harris. The Fed stopped the cycle just before Trump's return to the White House, which he himself considers a political action unacceptable for a financial regulator.
Can Trump fire Powell
• Powell's possible dismissal is now one of the main topics in US political life. So far, no US president, no matter how unhappy he was with the Fed's policy, has fired the head of the regulator, but has humbly waited for his term of office to expire or resign on his own. According to the law of 1913, the head of the Federal Reserve can be dismissed only for "reasonable reasons", such as an official offense or a serious act.
• Technically, Trump can fire Powell at any time, but this decision will immediately become the subject of legal disputes. The head of the Federal Reserve will have the right to receive an official notification with the listed charges, as well as to convey his position to the president before the resignation takes effect. Powell will then have the right to seek a preliminary injunction that will reinstate him.
• As a result, everything will be decided by the US Supreme Court after quite a long time — there is a high probability that not earlier than May 2026, when Powell will resign anyway. To speed up the process, Trump launched a campaign to accuse the Fed chairman of embezzlement, but lawyers interviewed by the American media say this is unlikely to be used as a reason for immediate dismissal.
• At the same time, economists warn that the dismissal of the head of the Federal Reserve, an independent agency from the White House, will be an extremely bad signal for investors. They will no longer perceive the American economy as free from government interference, which in recent decades has made it attractive to large capital. This will lead to a sell-off in the securities market and US government bonds, collapse the dollar exchange rate by several percent, and give a signal to an outflow of investments. Government debt payments will only increase, so Trump will achieve the opposite effect for himself. Already, the markets are acutely reacting to any rumors about Powell's dismissal, and concrete actions will disperse a real panic.
• Even if Trump ignores this and appoints a more loyal Fed chairman, or if he gets Powell to lower the rate to 1%, this will also have negative consequences for the economy. It will fall out of balance, which is due to low unemployment and moderate growth. There will be a spike in inflation, which will receive an additional boost with the entry into force of Trump's import tariffs. There have been periods in the history of the United States when the Fed's rate was not just around 1%, but even near zero, but then the economy did not have the same parameters as it does now, and the movement towards such a low rate was progressive and cautious.
It is quite likely that the rumors about Powell's dismissal will remain rumors. Trump's game on them leads to one consequence — a gradual weakening of the dollar. It allows us to refocus the US economy on exports and make it more competitive in the global market. This corresponds to Trump's economic policy much more than the specific actions of the White House regarding the Fed.
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