US President Donald Trump has openly criticised Federal Reserve Chair Jerome Powell, expressing his dissatisfaction with the Fed’s failure to implement aggressive interest rate cuts. Trump stated that Powell’s removal from his position “cannot come fast enough,” suggesting he might consider dismissing him despite Powell’s term lasting until next year. This outburst follows Powell’s announcement that the Fed would maintain its current key interest rate, as it seeks more clarity on the effects of policy changes related to immigration, taxation, regulation, and tariffs. Following Powell’s comments, stock prices saw a notable decline.
In a social media post, Trump claimed that oil and grocery prices were decreasing and that the US was benefiting from tariffs, urging Powell to lower interest rates as the European Central Bank had already done. The ECB had recently reduced its rate from 2.5% to 2.25%. Powell, who was initially appointed by Trump but had his term extended by President Joe Biden, stated he would not resign if asked and noted that the legal framework restricts the removal of top Fed officials unless warranted by cause.
The ongoing tensions are amplified by a forthcoming Supreme Court case that could potentially establish whether a president has the authority to dismiss heads of independent agencies like the Fed. Analysts have warned that challenges to the Fed’s independence could lead to increased market volatility. Trump’s increasing criticism comes at a time when the economy is facing risks associated with inflation and sluggish growth, largely due to his own trade policies and tariff increases.
While Powell’s mandate focuses on price stability and employment maximisation, the economic climate has been complicated by Trump’s aggressive tariffs, which have exacerbated inflation concerns and raised the possibility of recession. Consumer confidence appears to be declining, with fears rising about job security and inflation, as the costs associated with import tariffs are anticipated to affect households adversely. For instance, Yale University’s Budget Lab estimated that inflationary pressures from tariffs could equate to a loss of approximately $4,900 for the average American household.
In a recent address, Powell reaffirmed the Fed’s commitment to making decisions based solely on the best interests of the public, free from political influences. He emphasised that the Fed’s independence is enshrined in law and widely supported across the political spectrum.