Jerome Powell, the head of the US Federal Reserve, has been criticizing him for slowing down interest rates, as opposed to US President Donald Trump for months.
Trump has threatened to fire Powell and pressured him to resign, going further than his predecessor, who has not been the first president to do so.
Trump’s barbs have raised questions about the possibility that the Fed will lose its independence, which would have significant effects on the US economy.
What has Powell been said by Trump?
The Fed’s decision to maintain its benchmark interest rate range of 4.25 to 4.50 percent has been Trump’s main gripe with Powell.
To keep inflation at a minimum, the US central bank has resisted calls to lower the rate, which would lower the cost of borrowing across the economy.
Powell and his associates worry that prices will increase significantly in the upcoming weeks and months as a result of Trump’s tariffs, despite current low inflation.
Trump has suggested that the rate should be as low as 1%.
Trump has been in disagreement with Powell since his first term, when he nominates him for the position. However, in April, the president launched an aggressive attack against Powell, calling him a “major loser” and “numbskull” whose “termination cannot come quickly enough.”
Trump has since asked a group of Republican lawmakers for their views on the subject, and he has made contradictory remarks about whether he intends to fire Powell.
Other senior White House officials have joined the condemnation effort, just as Trump has done with Powell.
Office of Management and Budget Director Russell Vought accused Powell of shoddy handling the “ostentatious” $ 2.5 billion renovation of the Fed’s Washington, DC, earlier this month.
US Treasury Secretary Scott Bessent demanded a review of the renovation project on Tuesday and that the Fed’s practices “persistent mandate creep into areas beyond its core mission.”
I requested a review of the Federal Reserve today in a CNBC interview. I think the central bank should conduct a thorough internal review of its non-monetary policy operations. The Fed has expanded into areas where institutional growth and significant mission creep…
Does Trump have the authority to oust Powell?
The head of the Fed is more difficult to remove than the head of other independent government departments.
The president may sack the central bank’s head “for cause,” which is widely understood to be evidence of corruption or malfeasance, under the Federal Reserve Act of 1913.
The Fed was further insulated from political pressure by a landmark 1935 Supreme Court decision, which made it clear that independent agency heads could not be fired without cause.
The Trump Administration appeared to be zoning in on the Fed’s renovation project to use it as a pretext to fire Powell, according to David Wilcox, a senior fellow at the Peterson Institute for International Economics and former member of the Federal Reserve Board.
According to Wilcox, “The way they’re doing that is they’re drumming up a lot of controversy regarding the costs that have been and will be spent on the renovation of two of the historic buildings.”
The alleged mishandling of this situation by Powell seems to be the stoke of criticism, and it’s possible that this extremely small-scale incident will be used as a justification for Powell’s firing “for cause.”
Does Trump’s campaign against Powell have any past success?
Presidents Lyndon B. Johnson and Richard Nixon, both of whom were Democrats and Republicans, famously pressured the Fed chair to maintain low interest rates in the late 1960s and early 1970s.
Some historians believe that Nixon’s sway over Arthur Burns, the then-Fed chair, prevented him from initiating rate increases that might have prevented double-digit inflation starting in the middle of the 1970s.
What results from compromising central bank independence? According to Potomac River Capital CIO and Federal Reserve historian Mark Spindel, it has the potential to provide some kind of short-term gain for long-term pain.
And politicians are forgetful, too.
What will the market say after Powell’s resignation?
Markets have been tangled up by suggestions that Trump might scuttle Powell.
Following reports that Trump had asked Republican lawmakers whether he should fire the Fed chair, the benchmark US S&, P 500 briefly dropped by 0.7 percent and the US dollar dropped by 0.9 percent on Wednesday.
The most recent instance of what investors have dubbed the “TACO Trade” – short for “Trump Always Chickens Out” – was when Trump denied that he had any plans to remove Powell.
The US economy’s confidence and stock market would suffer significantly if Trump followed up on his threat to remove Powell, according to Wilcox.
“A rise in the anticipated inflation that is built into borrowing rates is probably a result.” An increase in risk premiums that are incorporated into long-term Treasury rates would reflect this, he added.
The loss of confidence that would result from the destruction of yet another important aspect of the economy, which has been ignored for many decades, would likely be reflected in the weakening of the US dollar.
Why wouldn’t Trump want Powell to be fired?
Spindel, a professor of economics, predicted that Powell might decide to stay in spite of his threats.
According to Spindel, the Fed chairman’s term expires in May of next year, and until then, Trump can use Powell as a scapegoat for any economic issues.
According to Spindel, Trump also views the stock market as a crucial indicator of success.
He claimed that the market’s influence on his policies is significant.
Source: Aljazeera
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