President Donald Trump has escalated public tensions with Federal Reserve Chairman Jerome Powell, calling him a "dummy" while simultaneously committing not to fire the head of the central bank despite growing disappointing over the Fed's reluctance to cut interest rates.
Speaking at an event at the White House on Thursday, Trump made his strongest criticism of Powell's monetary policy approach, stating that cutting interest rates by just one percentage point could save the U.S. $300 billion each year, while a two-point cut could create savings of $600 billion.
Why Does Trump Want to 'Force Something'
Trump's latest verbal attack marks the third time in two days that his administration has publicly targeted Powell. It comes after similar criticisms from Secretary of Commerce Howard Lutnick and Vice President JD Vance, who called the Fed's stance a "monetary error."
The coordinated pressure campaign stems from the increasing impatience of the government with the independence of the central bank, especially as Trump faces re-election pressure and seeks to demonstrate economic leadership.
Despite continuously calling Powell "Too late" and questioning why his dismissal would be controversial, Trump has not threatened to fire him, instead ominously implying that he "may have to force something" if the cutting down the whales does not happen soon.
The timing of Trump's criticism seems strategic, as recent economic indicators show that inflation is cooling and energy prices are falling due to increased domestic drilling under his "drill, drill, drill" energy policy.
Powell's current term as chairman of the Fed will expire in May 2026, and Trump has hinted that an announcement regarding his nominee for the next chairman of the Fed may be made soon.
Harvard legal experts argue that although Trump may have constitutional authority to dismiss Powell, such a move could cause severe market volatility and undermine the Fed's credibility as an anti-inflationary entity, potentially leading to a spike in long-term interest rates even if short-term rates are cut.
The President's Pressure Campaign Increases the Debate on Fed Independence
The escalating confrontation between Trump and Powell is a fundamental conflict over the independence of the Federal Reserve with profound constitutional and economic implications.
Trump's disappointment stems from his belief that the current interest rate environment imposes an unnecessary burden on the federal borrowing costs, especially as the government faces increasing short-term debt obligations approved under the Biden administration.
The president argued that Europe has made ten cuts in interest rates while the Fed has made none, despite similar economic conditions and a falling inflation index.
Legal scholars argue that while the Federal Reserve Act of 1913 allows for the removal of a governor "for cause," recent Supreme Court rulings have gradually eroded the traditional "for cause" protections that independent agencies have enjoyed for the past 85 years.
Daniel Tarullo of Harvard Law School, former member of the Federal Reserve Board, argued that the three conservative justices hinted at the possibility of treating the Federal Reserve differently from other agencies, which could create a separation based on the historical precedent of central banking dating back to the First and Second Banks of the United States.
However, market dynamics may protect Powell more than legal regulations, as any efforts to remove the Fed chair could trigger severe and immediate reactions in the market, counterproductive to Trump's economic goals.
The anticipated volatility of the market is a strong deterrent, especially as Treasury Secretary Scott Bessent focuses on maintaining stable 10-year Treasury bond yields, which play a crucial role in economic investment decisions.
Recent economic indicators have bolstered Trump's argument for immediate monetary easing. Inflation data shows that prices remain stable and energy costs are falling due to an increase in domestic oil production.
The positive producer price index in May has eased concerns about the sudden spike in inflation due to tariffs, encouraging the government to increase pressure on the Fed as the market increasingly expects the possibility of interest rate cuts later this year.
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Donald Trump Warns Fed: Cut Interest Rates or I Will "Force Something"
President Donald Trump has escalated public tensions with Federal Reserve Chairman Jerome Powell, calling him a "dummy" while simultaneously committing not to fire the head of the central bank despite growing disappointing over the Fed's reluctance to cut interest rates. Speaking at an event at the White House on Thursday, Trump made his strongest criticism of Powell's monetary policy approach, stating that cutting interest rates by just one percentage point could save the U.S. $300 billion each year, while a two-point cut could create savings of $600 billion. Why Does Trump Want to 'Force Something' Trump's latest verbal attack marks the third time in two days that his administration has publicly targeted Powell. It comes after similar criticisms from Secretary of Commerce Howard Lutnick and Vice President JD Vance, who called the Fed's stance a "monetary error."
The coordinated pressure campaign stems from the increasing impatience of the government with the independence of the central bank, especially as Trump faces re-election pressure and seeks to demonstrate economic leadership. Despite continuously calling Powell "Too late" and questioning why his dismissal would be controversial, Trump has not threatened to fire him, instead ominously implying that he "may have to force something" if the cutting down the whales does not happen soon. The timing of Trump's criticism seems strategic, as recent economic indicators show that inflation is cooling and energy prices are falling due to increased domestic drilling under his "drill, drill, drill" energy policy.
Powell's current term as chairman of the Fed will expire in May 2026, and Trump has hinted that an announcement regarding his nominee for the next chairman of the Fed may be made soon. Harvard legal experts argue that although Trump may have constitutional authority to dismiss Powell, such a move could cause severe market volatility and undermine the Fed's credibility as an anti-inflationary entity, potentially leading to a spike in long-term interest rates even if short-term rates are cut. The President's Pressure Campaign Increases the Debate on Fed Independence The escalating confrontation between Trump and Powell is a fundamental conflict over the independence of the Federal Reserve with profound constitutional and economic implications. Trump's disappointment stems from his belief that the current interest rate environment imposes an unnecessary burden on the federal borrowing costs, especially as the government faces increasing short-term debt obligations approved under the Biden administration.
The president argued that Europe has made ten cuts in interest rates while the Fed has made none, despite similar economic conditions and a falling inflation index. Legal scholars argue that while the Federal Reserve Act of 1913 allows for the removal of a governor "for cause," recent Supreme Court rulings have gradually eroded the traditional "for cause" protections that independent agencies have enjoyed for the past 85 years. Daniel Tarullo of Harvard Law School, former member of the Federal Reserve Board, argued that the three conservative justices hinted at the possibility of treating the Federal Reserve differently from other agencies, which could create a separation based on the historical precedent of central banking dating back to the First and Second Banks of the United States. However, market dynamics may protect Powell more than legal regulations, as any efforts to remove the Fed chair could trigger severe and immediate reactions in the market, counterproductive to Trump's economic goals. The anticipated volatility of the market is a strong deterrent, especially as Treasury Secretary Scott Bessent focuses on maintaining stable 10-year Treasury bond yields, which play a crucial role in economic investment decisions. Recent economic indicators have bolstered Trump's argument for immediate monetary easing. Inflation data shows that prices remain stable and energy costs are falling due to an increase in domestic oil production.
The positive producer price index in May has eased concerns about the sudden spike in inflation due to tariffs, encouraging the government to increase pressure on the Fed as the market increasingly expects the possibility of interest rate cuts later this year.