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President Trump criticized Fed Chair Powell for not cutting rates aggressively, hinting at firing him. Powell emphasized the Fed’s independence and focus on fighting inflation amid tariffs.
US President Donald Trump looks on as Jerome Powell, chairman of the US Federal Reserve, as he speaks at the White House in Washington, US. (IMAGE: REUTERS FILE)
President Donald Trump criticised Federal Reserve Chair Jerome Powell on Thursday, expressing frustration that the Fed has not aggressively cut interest rates and stating that the central bank leader’s “termination cannot come fast enough.”
Trump hinted at moving to fire Powell, whose term does not expire until May. The Republican president’s criticism came a day after Powell indicated that the Fed will keep its key interest rate unchanged while seeking “greater clarity” on the impact of policy changes in areas such as immigration, taxation, regulation, and tariffs.
Powell also reiterated that Trump’s tariffs would likely raise inflation and slow the economy, making it harder for the Fed to cut rates anytime soon. The Fed chair suggested that the central bank will focus on fighting inflation in the wake of the tariffs, even if the duties weaken the economy. Powell’s comments contributed to a drop in stock prices on Wednesday.
“Oil prices are down, groceries (even eggs!) are down, and the USA is getting rich on tariffs,” Trump said in a social media post.
Referring to the European Central Bank, he added that Powell “should have lowered interest rates, like the ECB, long ago, but he should certainly lower them now. Powell’s termination cannot come fast enough!”
The European Central Bank on Thursday lowered its key interest rate from 2.5% to 2.25%.
Powell was initially nominated by Trump in 2017 and was appointed to another four-year term by President Joe Biden. At a November news conference, Powell indicated he would not step down if Trump asked him to resign. He has also said that the removal or demotion of top Fed officials was “not permitted under the law.”
Trump’s comments come with the backdrop of a legal case at the Supreme Court that could determine whether presidents can fire the heads of independent agencies such as the Fed.
The case stems from Trump’s firings of officials from two independent agencies. The Supreme Court last week let the firings stand while it considered the case.
It could issue a broader ruling this summer that would enable the president to fire Fed officials, including the chair.
Powell said the Fed is watching the case closely, adding that it might not apply to the Fed. Lawyers for the Trump administration have argued that allowing the president to fire the two officials would not erode the Fed’s independence.
“It is difficult to overstate the consequences at this stressed moment of a court ruling that found that President Trump does have the authority to dismiss the heads of independent agencies and did not establish a clear carve-out for the Fed,” Krishna Guha, an analyst at investment bank Evercore ISI, wrote on Thursday.
“If you liked the tariff debacle in markets, you’d love the loss-of-Fed-independence trade.”
Powell started Trump’s second term in a relatively secure spot with a low unemployment rate and inflation progressing closer to the Fed’s 2% target, conditions that could have spared the US central banker from the president’s criticism.
But Trump’s aggressive and haphazard tariffs have increased the threat of a recession with both higher inflationary pressures and slower growth, a tough spot for Powell, whose mandate is to stabilise prices and maximise employment.
With the economy weakening because of Trump’s choices, the president appears to be looking to pin the blame on Powell.
Powell, in his remarks at the Economic Club of Chicago on Wednesday, said the Fed will base its decisions solely on what is best for all Americans.
“That’s the only thing we’re ever going to do,” Powell said. “We’re never going to be influenced by any political pressure. People can say whatever they want. That’s fine, that’s not a problem. But we will do what we do strictly without consideration of political or any other extraneous factors.”
“Our independence is a matter of law,” Powell continued. “We’re not removable except for cause. We serve very long terms, seemingly endless terms.”
Trump has unleashed a series of tariffs that have put the US economy and the Fed in an increasingly perilous spot. On April 2, the president rolled out aggressive tariff hikes based on US trade deficits with other nations, causing a financial market backlash that almost immediately led him to announce a 90-day pause in which most countries would be charged a baseline 10% tariff while negotiations go forward.
But Trump increased his tariff hikes on China to a rate of 145%, in addition to his existing tariffs on Canada, Mexico, autos, and steel and aluminium.
Wall Street banks such as Goldman Sachs have raised their odds that a recession could start.
Consumers are increasingly pessimistic in surveys about their job prospects and fearful that inflation will shoot up as the cost of the import taxes gets passed along to them. The risk of stagflation — stagnant growth and high inflation — would make it harder for the Fed to respond with the same playbook as recent downturns.
The Budget Lab at Yale University estimated that the increased inflationary pressures from the tariffs would be equal to the loss of $4,900 in an average US household.
(with inputs from Associated Press)
- Location :
Washington D.C., United States of America (USA)
