According to a report by The Wall Street Journal, informed sources say that months ago, Trump discussed the possibility of dismissing Powell before the end of his term at a meeting with former Federal Reserve Governor Kevin Warsh at Mar-a-Lago, with Warsh as a potential successor. Warsh advised Trump not to remove Powell and argued that Powell should be allowed to complete his term without interference. Their communication continued until February this year, while others in the White House were still suggesting to Trump to dismiss Powell as late as early March. However, sources have revealed to the media that Trump has not yet made a final decision on whether to dismiss him before Powell's term ends next year.
Media reports indicate that US President Trump has been privately discussing the possibility of removing Federal Reserve Chair Jerome Powell for months, according to sources familiar with the matter, but he has not yet made a final decision on whether to dismiss him before Powell's term ends next year.
The Wall Street Journal reports that, according to sources, Trump discussed the potential dismissal of Powell and his replacement by Warsh during a meeting at Mar-a-Lago with former Federal Reserve Governor Kevin Warsh before Powell's term ends.
Warsh advised Trump against dismissing Powell and argued that Powell should be allowed to complete his term without interference. Media reports state that their communication continued until February of this year, while others within the White House were still suggesting to Trump in early March to remove Powell.
Analysts believe that any attempt by Trump to remove Powell would almost certainly end up in the US Supreme Court. If the US president dismisses the Federal Reserve Chair over policy differences, this could cast a shadow over the potential successor and trigger significant turmoil in the financial markets.
Trump has criticized Powell three times in one day, but there are significant disagreements within the White House about whether to fire Powell.
On the morning of Thursday, the 17th, Trump posted on Social Media:
"Always too late and wrong" Federal Reserve Chairman Jerome Powell released a report yesterday, which was yet another typical, complete "mess"!
Powell should have lowered interest rates long ago like the European Central Bank, but now he definitely should lower them. The sooner Powell leaves, the better!
On Thursday during the US stock market's midday session, Trump made two calls to Powell.
Trump said, I think Powell is not doing his job well. If I make a request, he has to leave. Powell does not make me happy. He is always slow to act.
Trump accused Powell of manipulating politics, saying he is too bad. US interest rates have risen, and they should be lowered. Powell should cut rates. Trump also compared this to Europe, saying Europe is already lowering rates.
After a few minutes, Trump again "bombarded" Powell, saying the Federal Reserve should cut rates, which is what the Fed owes the American people. Powell will face a lot of political pressure.
Trump said the only good thing Powell can do is to cut rates. If Europe cuts rates while the Fed remains indifferent, it will put the USA at a disadvantage. Costs are decreasing, and US inflation is negligible.
Trump's comments are clearly a response to Powell's hawkish statement from last night. On Wednesday, Powell reiterated what he said more than a week ago, stating that the Fed is "fully capable of waiting until (the situation) is clearer, and then considering adjusting our policy stance." Powell believes Trump's policies, such as tariffs, create significant uncertainty for the economy, and the Fed must avoid allowing tariffs to permanently drive up inflation.
In fact, Trump has long been dissatisfied with Powell. Trump feels that Powell is "a step behind" in fighting inflation and is "acting too slowly." He has urged for rate cuts multiple times on social media, asking Powell to "act quickly."
There is currently no consensus in the White House on whether to dismiss Powell.
There is no agreement among Trump's advisory team on whether the president should take such action, and it remains unclear whether Trump will actually dismiss Powell.
Within the White House, Treasury Secretary Scott Bessent has strongly opposed the suggestion to dismiss Powell, believing the benefits of doing so are limited and the risks are very high. This week he described the Federal Reserve's independence in monetary policy as a "jewel box," which is a treasure that should never be destroyed by the USA.
Bessent stated that the White House will begin selecting the next Federal Reserve Chair around six months before Powell's term ends this fall. According to multiple sources who have interacted with Warsh, he left the impression last year that he was almost predetermined to succeed Powell after his departure.
However, another faction of advisors is eager to challenge Powell more directly. They believe that the Federal Reserve and its supporters in Washington and Wall Street's worship of the Fed's independence lacks constitutional basis and is detrimental to the economy.
Despite the opposition, Trump privately tells those around him that he wants Powell to step down. He also believes that the provision in the Federal Reserve's law stating that one can only be removed for just cause does not hold up in court.
Trump attempted to overturn the old precedent.
Whether a Federal Reserve Chair can be dismissed before the end of their term remains undecided, as it has never happened in history. Trump previously acknowledged that there is no clear provision in the law regarding this. In October last year, Trump stated: "I was threatening to fire him at the time, and everyone was asking whether this was actually possible."
Trump is trying to dismiss several appointed officials of the Biden administration, but these individuals are citing a 90-year-old legal precedent to challenge Trump's dismissal decision. The Department of Justice hopes to overturn the 1935 "Humphrey’s Executor" case, which established the precedent that a president cannot remove independent agency commissioners due to policy disagreements.
Some legal scholars believe this case is the strongest legal defense supporting the independence of the Federal Reserve. Some officials at the White House are closely monitoring whether the Supreme Court will overturn this precedent to decide the next steps regarding Powell.
Powell stated on Wednesday that he believes the case regarding Trump's dismissal of members of the National Labor Relations Board is unlikely to apply to the Federal Reserve. He speculated that even if the Supreme Court overturns the 1935 precedent, it may provide another protective mechanism for Federal Reserve governors.
"This is a situation we are paying very close attention to," Powell said.
As early as 2017, Trump considered nominating Warsh for the Federal Reserve Chair before appointing Powell. Warsh previously served as an economic advisor to President George W. Bush and was appointed as a Federal Reserve governor in 2006, acting as a liaison between the Federal Reserve and Wall Street during the 2008 financial crisis, leaving in 2011. He later collaborated with billionaire investor and Treasury Secretary Bentsen's mentor, Stanley Druckenmiller.
Even if a dismissal does occur, it is very likely that Powell will continue in his role.
Since the high inflation of the 1970s, the Federal Reserve has always highly defended its independence. Recordings show that President Nixon privately pressured Federal Reserve Chairman Arthur Burns to loosen policy before the 1972 election, and Burns complied.
After experiencing high inflation and economic recession in the 1980s, the Federal Reserve and other central banks around the world were granted significant autonomy in monetary policy. The independence of central banks also helps politicians avoid accountability for the "painful" measures taken to control inflation.
Many investors from the USA and internationally view the Federal Reserve's independence as the cornerstone of controlling inflation and maintaining the safety of long-term government bonds. Once the market doubts that the Federal Reserve may compromise on inflation control, long-term government bond yields could rise significantly.
Six years ago, Powell clearly stated that he would sue regarding the removal decision, and recent public remarks indicate he has not changed his stance.
At that time, the leadership of the Federal Reserve decided that if Powell's position as Chairman of the Federal Reserve Board of Directors was questioned, Federal Open Market Committeethe FOMC would hold an emergency meeting to immediately reelect Powell as its chairman.
The FOMC is composed of seven governors from the Federal Reserve's Washington headquarters and the rotating presidents of the 12 regional Federal Reserve Banks, who are nominated by the boards of local banks and not appointed by the president. The FOMC elects its chair at the first meeting of each year.
Therefore, even if Trump removes Powell, he is likely to continue effectively leading the Federal Reserve until the lawsuit results come out, making the actual effectiveness of the removal minimal.
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Editor/Rocky