President Donald Trump said he has no intention of firing Jerome Powell, but still made it sound like a threat.
Trump’s remarks ended a busy day of activities, pushing his pressure on the Fed chair to a new level and causing a brief market plunge.
Later on Tuesday, he floated the idea of firing Powell to a group of open-minded Republican lawmakers. On Wednesday morning, an aide said he might follow through. But then, the president publicly changed his mind – and issued an important warning.
On Wednesday, when asked about the possibility of firing the chair of the Federal Reserve, Trump said, “I don’t rule anything out, but I think the chances are very small, unless he has to leave because of fraud.”
This reflects Trump’s latest stance towards Powell: intensifying the scrutiny of the renovation project of the two main office buildings of the Federal Reserve in Washington. The president and his allies have stated that the project is unnecessarily luxurious and far exceeds the budget. They have also insinuated that there are financial irregularities.
All of this stems from Trump’s view that the Fed has kept interest rates at an excessively high level – and this has increasingly unsettled investors, who tend to believe that central bank governors should be free from political interference rather than besieged by it.
The market has grown accustomed to Trump’s verbal attacks on Powell, which have been his main refrain for years. On Wednesday, the market briefly realized that Trump’s remarks might soon translate into action. The market reacted strongly: the dollar plunged by more than 1%, and long-term US Treasury yields soared.
After the president sent out a signal to hold back, these measures were basically reversed. The question now is how long this situation will last.
Powell’s term as chair will end in May next year no matter what, and Trump has already started looking for a successor. But he has also made it clear that he will not abandon the reform plan in the short term.
Powell said the reports about the project were inaccurate and asked the bank’s inspector general to review it.
“Many people say he should be fired because everything he did was fraudulent,” Trump said in an interview with “The Real America’s Voice” on Wednesday. “He spent 2.5 billion dollars. I guess it was for renovations.”
When asked about firing Powell, Trump said, “If he wants to resign, that’s up to him. They say if I resign, the market will be disrupted.”
It is still unclear whether the president has the authority to fire the chair of the Federal Reserve. However, Trump said that on Tuesday night he met with about a dozen House Republicans and conducted a poll on the issue, and almost all of them expressed support.
For Trump, such conversations are often a harbinger. He tends to publicly discuss various ideas and seek the opinions of his assistants and even the public at rallies before taking action. It was said that Trump waved a draft of a dismissal letter during the meeting, but he later denied it.
For the beleaguered Federal Reserve, the next question is whether Trump’s three aides may visit the renovation site, which would bring the project back into the spotlight. Russell Vought, director of the Office of Management and Budget, Deputy Chief of Staff James Blair, and Federal Housing Finance Agency Director Bill Pulte, one of Powell’s most vocal critics, are pushing for their own interim investigation.
Pulley said in an interview with Bloomberg Television on Wednesday: “His time is up, but the president has made it clear that he doesn’t want him here.” He did not explicitly state whether he personally drafted the dismissal letter that Trump waved in front of lawmakers.
This pressure campaign was a one-sided struggle because Powell was constrained in publicly countering Trump’s fierce offensive. However, the Fed chair was not without defenders.
This list actually covers the global financial market. One view holds that the president was merely testing the waters on Wednesday, but the scene he witnessed made him hesitate.
Anna Wong, chief U.S. economist at Bloomberg Economics, wrote: “We think Trump is testing the waters to see if he can fire Powell. The market’s intense reaction seems to have made him temporarily withdraw his remarks about firing Powell.” But she predicted that the situation would escalate further and warned that firing Powell would lead to slower economic growth, higher unemployment and higher inflation.
Finance Minister Scott Bessent told Bloomberg Television this week that Powell would be best advised to exit completely after stepping down as chair of the Federal Reserve. Powell has not publicly indicated his intentions.
Bessen is one of the key advisers to the president on the successor to Powell, and he himself could be a candidate. Other major contenders include Kevin Hassett, director of the Trump National Economic Council, who some believe has inside information, and Kevin Warsh, a former Federal Reserve governor.
