On July 15th, local time, The New York Times revealed that President Donald Trump had drafted a letter to fire Federal Reserve Chairman Jerome Powell and initiated the selection process for the new Fed chair. Despite Trump denying this claim on the same day,
the news still shook Wall Street and once again focused global financial public opinion on the conflict between the president and the Fed.
△The New York Times reported that Trump had drafted a letter to fire Federal Reserve Chairman Powell.
Why is Trump dissatisfied with Powell?
Combining Trump’s previous statements and insider information from the White House, Trump’s dissatisfaction with Powell mainly focuses on the following points:
Trump believes Powell has been too slow in cutting interest rates. Since 2018, the Federal Reserve has adhered to an interest rate hike cycle, which contradicts Trump’s policy of stimulating economic growth through low interest rates.
Powell insists on the “independence” principle of the Fed,
refusing multiple times to align with the White House’s policy direction in public, causing Trump to feel embarrassed repeatedly.
Powell is low-profile and rarely participates in media discourse, while Trump hopes that those in important positions will align with him and be willing to cooperate with public statements.
—including Treasury Secretary Scott Stevens, Director of the National Economic Council Kevin Warsh, and others.
Generally, there is a negative attitude towards Powell, further exacerbating the conflict.
Who will become the next Fed chair?
On July 15th, Trump publicly stated: “Treasury Secretary Scott Stevens might be the next Fed chair candidate, but I prefer him to continue as Treasury Secretary.” However, on July 16th, he mentioned that Warsh was one of his considerations for the Fed chair. These statements by the media were seen as early spoilers of the internal direction of the White House discussion,
while also showing that Trump is still undecided, perhaps to confuse the public.
Overall, the Federal Reserve Chair candidates currently entering Trump’s sight include:
1. The current Secretary of the Treasury, a market-oriented style, advocating for flexible interest rates and fiscal coordination, who has been “nominated” by Trump.
2. The current Chairman of the National Economic Council, supporting interest rate cuts and monetary easing, serving as Trump’s core economic advisor, also “nominated” by Trump.
3. A former Federal Reserve Board member, known as an “eagle-eyed representative,” he emphasizes controlling inflation and financial stability, favoring early interest rate hikes and risk prevention, highly sought after in the market.
4. The current Federal Reserve Board member, with a policy stance leaning towards the “market side,” holding a more flexible position between interest rate hikes and easing, seen as a “midway option” by Waller, closer to Trump’s team preference than Kevin Warsh, but not entirely labelled. If Trump considers balancing political and market signals, Waller would be a “safe card” candidate.
5. A former World Bank President and former Deputy Minister of Finance, his policy stance is pragmatic, advocating for the revival of the U.S. manufacturing sector and encouraging “weak dollar policies” and looser interest rates.
△AXIOS, a U.S. news website, detailed Trump’s potential choices for the Federal Reserve Chair, becoming a hot topic nationwide.
The Independence of the Fed Relates to International Trust
The Democratic Party generally believes that this move harmed the economic governance mechanism and international credit of the United States, being a dangerous signal of “political interference in finance.” Several Democratic Senators, such as Elizabeth Warren, have explicitly stated that Trump’s actions undermined the independence of the Federal Reserve.
There are also clear divisions within the Republican Party
. Some Republican lawmakers hold strong reservations, especially those in charge of financial and budget affairs, like Tom Tillis from the Bank Committee, explicitly stating, “Terminating the independence of the Federal Reserve will be a huge mistake,” and warning that if the chairman were indeed removed, the Senate would “respond swiftly.”
This indicates a tension within the Republican Party over maintaining the financial system and supporting the executive power of the president, with lawmakers involved in financial policy leaning more towards stability.
Wall Street and the financial sector have expressed widespread concerns. Analysts from multiple financial institutions believe that this move will lead to market volatility and may cause investors to worry about the creditworthiness of the dollar and U.S. Treasury bonds.
Public opinion widely emphasizes that the independence of the Federal Reserve is the cornerstone of global trust in the U.S. economy.
According to CNN reports, if Trump removes Powell, global markets could experience turmoil.
Trump’s actions are unprecedented in history.
Policy differences between the president and the Fed Chair have occurred several times in history.
President Lyndon B. Johnson clashed with then-Fed Chairman Martin over the Fed’s interest rate hike policy during the Vietnam War. Johnson also personally pressured Martin not to raise rates at his Texas ranch. Johnson said, “My country is fighting (referring to the Vietnam War), but your policies are costing my country.” However, Martin ultimately did not fully comply with Johnson’s demands.
Moreover, well-known is the game between President Richard Nixon and then-Fed Chairman Arthur Burns. During his reelection campaign, Nixon used political means to pressure Burns behind the scenes, hoping he would maintain a loose monetary policy to stimulate the economy, aligning with Nixon’s political goals. The Watergate investigation later revealed some details of this aspect.
Additionally, President Carter and then-Fed Chairman Alan Greenspan disagreed on addressing inflationary policies. At that time, Greenspan adopted an extremely aggressive interest rate hike policy, which caused significant pain to the economy in the short term, including high unemployment and economic recession.
Despite Carter’s dissatisfaction, he did not fire Volcker but was seen as respecting the independence of the Federal Reserve.
According to a report by National Public Radio (NPR), during President Carter’s tenure, it was precisely because of Fed Chairman Volcker’s interest rate hikes that the vicious cycle of rising prices was broken, which was considered key to ending deflation and restoring economic stability in the United States.
Although there have been numerous stories of presidents and Fed Chairs clashing in history, none has actually dismissed the Fed Chair. This is fundamentally because:
In law, the Fed Chair enjoys a term guarantee, and the President does not have the authority to directly remove the Fed Chair. This system design is also intended to avoid short-term political interference.
What sets this Trump-Powell conflict apart from past ones is that Trump not only publicly criticized but reportedly drafted a letter of resignation.
This direct challenge to the independence of the Fed is unprecedented in American history. At the same time, Trump has begun to actively screen potential replacements, rather than merely pressuring verbally.
However, on July 16th local time, when discussing Powell, Trump stated that he currently has no plans to take any action or draft a letter of resignation. He also mentioned that personnel adjustments would be made within eight months.
According to a report by CNBC, Trump denied plans to fire Powell.
The institutional and political game will continue.
From the current legal perspective, if Trump were to directly dismiss Powell, it could trigger a legal and constitutional crisis and lead to a strong reaction in the financial markets.
The fastest route for him would be to wait for Powell’s term to end or to pressure him into resigning through political means.
Media have noted Trump’s wavering on whether to dismiss Powell.
The Associated Press reported that although Trump stated on July 16th that he would not fire Powell, just a few hours earlier, he had indicated his intention to do so in a private meeting.
Trump’s stance is actually due to his clear understanding of the potential upheaval that could arise from firing Powell.
△ The Associated Press reported that Trump was wavering on whether to remove Powell.
Trump is likely to intensify his public opinion campaign and continue to pressure Powell.
At the same time, the White House will accelerate the process for selecting the Federal Reserve Chairman, preparing ahead.
If Powell refuses to resign, the relationship between the two parties may freeze, putting unprecedented pressure on the Fed’s operations; meanwhile, Congress is likely to intervene in discussions about the independence of the Fed, creating a new political controversy focal point. Just like during Nixon and Burns’ era,
the financial markets will remain highly focused on this power struggle.
Regardless of the outcome, this “Trump vs. Powell” dispute is destined to become another significant chapter in American monetary policy history.