by Josh Wingrove
President Donald Trump said he’s not planning to fire Jerome Powell, and still managed to make it sound like a threat.
Trump’s comments capped a hectic few hours that took his pressure campaign against the Federal Reserve chief to a new level — and sent markets into a shortlived nosedive.
He ran the idea of sacking Powell by a receptive group of Republican lawmakers late Tuesday. An aide said Wednesday morning he was likely to follow through. Then the president publicly backpedaled – with a major caveat.
“I don’t rule out anything, but I think it’s highly unlikely, unless he has to leave for fraud,” Trump said Wednesday when asked about axing the Fed chair.
It was a nod to the latest front that Trump has opened against Powell: Intensifying scrutiny of the Fed’s renovation of its two main buildings in Washington. The president and his allies say the project is unnecessarily lavish and way over-budget, and they’ve hinted at financial wrongdoing, too.
All of this is rooted in Trump’s view that the Fed is keeping interest rates too high – and it’s increasingly disturbing for investors, who tend to think central bankers should be left alone by politicians, not besieged by them.
Markets have gotten used to Trump’s verbal attacks on Powell, a staple of his rhetoric for years. They were briefly confronted on Wednesday with the possibility that words might translate into action — and soon. Reaction was sharp: The dollar slumped more than 1%, and long-term Treasury yields spiked.
The moves were largely reversed after the president signaled a reprieve. The question now is how long that will last.
Powell’s term as chair ends next May anyway, and Trump has begun the search for a successor. But he’s also making it clear that he won’t let up on the renovation issue anytime soon.
Powell has called reports about the project inaccurate, and asked the bank’s inspector-general to review it.
“There are many people who say he should be removed because of the fraud of what he’s doing,” Trump said in an interview with Real America’s Voice broadcast on Wednesday. “He’s spending two and a half billion dollars to, I guess it’s a renovation.”
“If he wants to resign, that would be up to him. They say it would disrupt the market if I did,” Trump said when asked about firing Powell.
It’s not clear if the president even has the power to remove a Fed chair. Still, Trump says that when he met Tuesday night with about a dozen House Republicans and polled them on the subject, almost all were in favor.
With Trump, conversations like that are often a precursor. He tends to publicly toy with ideas, and poll aides and even crowds at rallies, before moving forward with them. Trump was said to have brandished a draft dismissal letter in the meeting, though he later denied that.
Next up for the beleaguered central bank is the prospect that a trio of Trump aides might visit the renovation site, casting a fresh spotlight on the project. Office of Management and Budget Director Russell Vought, Deputy Chief of Staff James Blair and Federal Housing Finance Agency Director Bill Pulte – one of Powell’s most vociferous critics — are pushing to carry out an ad-hoc investigation of their own.
“His time has come and the president has made clear that he doesn’t want him here,” Pulte told Bloomberg Television on Wednesday, demurring on whether he personally drafted the dismissal letter Trump was said to have waved in front of lawmakers.
The pressure campaign is a lopsided fight, because Powell is constrained in how far he can push back publicly against Trump’s barrage. Still, the Fed chief isn’t without defenders.
The list effectively includes global financial markets. One view is that the president was floating a trial balloon on Wednesday, and was deterred by what he saw.
“We think Trump is testing the markets to see whether he can fire Powell,” wrote Anna Wong, chief US economist at Bloomberg Economics. “The sharp reaction appears to have convinced him to pull back on the firing rhetoric for now.” But she predicts more escalation, and warns that firing Powell would slow growth and raise unemployment and inflation.
Read More: Bloomberg Economics on the costs of firing Powell
Also stepping up to the Fed chief’s defense on Wednesday was Senator Elizabeth Warren of Massachusetts, the top Democrat on the Banking, Housing, and Urban Affairs Committee, and a longtime Powell critic. She poured scorn on the administration’s scrutiny of Fed renovation.
“Give me a break,” Warren said. “Nobody is fooled by this pretext to fire Chair Powell. And markets will tank if he does.”
Congressional Republicans were split on the move. “My understanding is he doesn’t have any intention of doing that,” said Senate Majority Leader John Thune. House Speaker Mike Johnson said he wasn’t sure Trump had the power to do so, though referred to the frustration in party ranks by saying “new leadership would be helpful at the Fed.”
Internal GOP tensions may help explain the timing of Trump’s latest salvo against Powell. The president is looking to shift attention away from the saga over the release of documents in the Jeffrey Epstein case — which has sharply divided his base. Trump said Wednesday he had “total” confidence in Attorney General Pam Bondi over the matter, and he’s angrily urged supporters to shift their attention elsewhere.
That’s not much consolation to Powell, who faces consequences even if the threatened firing doesn’t materialize. The political storm could complicate the central bank’s path to lowering interest rates, which it’s been reluctant to do because of uncertainty over how much impact Trump’s tariffs will have on consumer prices.
Another gray area concerns Powell’s future at the central bank after his tenure as chair ends in May — assuming he makes it that far. His seat on the Fed board extends for about a year-and-a-half longer.
Treasury Secretary Scott Bessent told Bloomberg Television this week that it would be better if Powell bowed out entirely when he departs as chair. Powell hasn’t made his intent known publicly.
Bessent is among the key aides advising the president on who to pick as Powell’s successor — and might be a candidate himself. The other top contenders are Kevin Hassett, the director of Trump’s National Economic Council — who is said by some to have the inside track — and Kevin Warsh, a former Fed governor.
The president reiterated on Wednesday that whoever gets the job will be expected to deliver lower rates — another potential hammer blow to the central bank’s autonomy, even if Powell escapes firing.
“Fortunately, we get to make a change in the next, what, eight months or so,” Trump said. “I’m only interested in low-interest people.”
Copyright Bloomberg News
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