Will US Fed chair Jay Powell be fired by Trump?
The fate of US Federal Reserve chair Jay Powell looks increasingly uncertain as the Trump administration ramps up pressure on the central back to cut rates faster.
Powell has been resolute that he will not be influenced by Trump’s attempts to sway the Fed, instead sticking to its mission of bringing down any inflation that could be caused by tariffs raising prices.
“He [has] indicated that the Fed would probably put its anti-inflation mandate ahead of the target to see full employment in the USA if price pressures ticked higher,” said Steve Clayton, head of equity funds at Hargreaves Lansdown.
Powell’s term as chair of the Fed will end in May next year, though he will carry on its board of governors for another two years after.
Markets are incredibly nervous about the consequences that a Trump loyalist being installed following a sacking of Powell could have on the US economy.
John Plassard, senior investment specialist at Mirabaud Group, warned that the move “would undermine the central bank’s independence and credibility in the eyes of the markets”.
In Turkey, president Recep Tayyip Erdogan sacked central bank governors and put in place loyalists that slashed interest rates in a push for growth, a move which ultimately led to skyrocketing inflation in the country.
Similar incidents have happened in other emerging markets where central bank independence was eroded, but rarely if ever have occurred in the developed world.
Trump and Powell
However, despite having originally appointed Powell to the job, Trump has frequently attacked the chair online for failing to fall in line with his preferred monetary policy.
“Powell’s termination cannot come fast enough,” the president wrote in a post on his social media website Truth Social today.
Trump also stated that Powell was “always TOO LATE AND WRONG,” adding he “should have lowered interest rates, like the [European Central Bank], long ago, but he should certainly lower them now.”
The spread between five year US Treasuries and 30 years spiked rapidly in the minutes following Trump’s comments, over fears that Powell’s sacking could destabilise markets further.
The comments from the president follow many previous remarks attacking Powell, including a tirade earlier this month where Trump said: “CUT INTEREST RATES, JEROME, AND STOP PLAYING POLITICS!”
“The Fed will not be cowed by Trump alone, but Trump will eventually fire Powell if rate cuts are not forthcoming,” said Matt Gertken, chief geopolitical strategist at BCA Research.
However, at the end of last year, Trump said he wouldn’t sack Powell from his chairmanship before his term ended. “No, I don’t think so. I don’t see it,” Trump said.
Earlier this month, the Supreme Court allowed Trump to temporarily remove two board members from federal labour agencies, and are deciding whether they can be permanently fired.
Speculation has been rife that if the court rules in Trump’s favour, thought to be the most likely outcome, the president could use the decision as a justification to fire Powell.
However, Powell said yesterday that the case probably wouldn’t let Trump sack him.
“I don’t think that that decision will apply to the Fed, but I don’t know,”It’s a situation that we’re monitoring carefully.”
Candidates floated to replace Powell include Christopher Waller, a Fed board member who has attempted to catch the eye of the president through “uber-dovish remarks” towards rate cuts, according to Pepperstone analyst Michael Brown.