Powell firing could put central bank’s independence in doubt

President Donald Trump is escalating his attacks on the Federal Reserve and Chair Jerome Powell over frustrations about the refusal to cut interest rates in the face of his dramatic overhaul of U.S. trade policy and tariffs that have upended markets and caused alarm for businesses trying to adapt.

Trump suggested twice on Thursday he could remove Powell from his position as chair, a move that would shatter the U.S. central bank’s position as an independent entity free from political influence and could crater financial markets around the world.

“If I want him out, he’ll be out of there real fast, believe me,” Trump told reporters at the White House. The remark followed an early morning post on Truth Social saying, “Powell’s termination cannot come fast enough!”

On Friday, White House Economic Adviser Kevin Hassett said the administration would study the matter when asked if firing Powell was an option.

“The president and his team will continue to study that matter,” he said.

It was the latest attack on Powell and the central bank since Trump returned to office after repeated calls on it to cut interest rates. The president also clashed with the Fed during his first term on similar grounds.

The Wall Street Journal reported Thursday that Trump has privately discussed firing Powell for months but has not yet made a decision about whether to try to remove him before his term as chair runs out next year.

Trump has repeatedly criticized Powell for the Fed’s decisions to leave interest rates in place and called for cuts to boost the economy as the effects of his sweeping tariff agenda set in. Rates have not changed since two cuts last year with inflation sticking above the Fed’s target of 2%.

Stock markets have been highly volatile over the last month because of repeated tariff announcements and drawbacks along with bubbling fears about a recession hitting the U.S. economy. Markets would likely revolt in a scenario where Powell or another chair was removed from their position over a policy dispute.

“The loss of confidence, or the ability of the Fed to act in the best interest of the economy, not the best interest of politicians, could undermine the integrity of the capital markets,” said Mark Williams, a finance lecturer at Boston University’s Questrom School of Business and former bank examiner at the Fed. “We’ve seen it already. Last week, not only did we see a stock market that continued to crash, but we saw it bleed into an otherwise safe bond market.

“The bond market was unhinged because of these policies around tariffs, the rapid change in trade and in flow of monies. So not only did the bond market get hammered, the liquidity of the bond market came into question.”

Powell has maintained a position that the Fed needs to be patient on deciding how to move forward on interest rates to see what the effects of the tariffs are on the economy. The Fed wants to give itself the ability to keep price pressures from the tariffs from spiraling out of control and be ready to help any dips in the labor market as a result of slower activity, most economists are expecting to come later this year.

Interest rates are the primary tools the Fed has to steer the economy. It typically cuts rates to give the economy a boost and the labor market on track and raises them when it runs too hot and prices show signs of spiking.

The challenge facing the Fed are conflicting pressures and uncertainty about the future of trade policy after a series of whiplash tariff announcements and an escalating trade war with China. It could cut rates to help give a slumping economy a boost but risks further increasing prices, while leaving rates elevated or increasing them could send the economy into a tailspin and bring a spike in unemployment.

The president’s attack on Powell came a day after the Fed chair warned that tariffs are creating a “challenging scenario” for the central bank to navigate and putting its two mandates — maximum employment and stable prices — in tension with each other.

“I do think we’ll be moving away from those goals, probably for the balance of this year, and then — or at least not making any progress — and then we’ll resume that progress as we can,” Powell said in a Wednesday speech.

Legal experts generally agree the president doesn’t have the legal authority to fire Powell over a policy disagreement like decisions on interest rates, but it has never been tested in the nation’s legal system.

Maintaining the Fed’s independence from political influence has been a priority for decades to ensure its moves are made on economic grounds instead of political motives.

“If Trump is successful in removing Powell and gets in a ‘yes’ person, then that will further undermine the integrity of the capital markets and being the largest economy, that would be concerning for other central banks around the world,” Williams said. “The scenario I’d see is Powell gets booted, a political appointment gets in, interest rates drop, inflation goes to the moon, and we’re thrown into recession.”

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