Trump has given Powell eight months to go. Some experts believe it's time for him to go already
The US president has for months criticized the Fed chief for refusing to cut rates and regularly hints at the possibility of his early dismissal
US President Donald Trump has made it clear that he does not plan to seek the early dismissal of US Federal Reserve Chairman Jerome Powell, who refuses to lower the key rate. Instead, Trump said Powell's term will expire in eight months and "he'll be gone". Investment banks have warned that an early dismissal of the Fed chief could be negatively perceived by markets, but some economists say that Powell's resignation for the Fed's reputation - "is better than what is happening now."
Details
Trump intends to wait for Powell's term to expire, despite the fact that he is a "moron" who keeps interest rates too high. Trump said this at a news conference on July 22, writes Reuters.
"I think he's not doing a good job, but he's going to be gone soon anyway. In eight months he'll be gone," Trump said.
Powell's term of office as head of the Fed expires on May 15, notes Reuters. Powell has repeatedly emphasized that he is not going to resign early. Why Trump named an eight-month term - until mid-March - remained unclear.
Context
Trump has criticized Powell for months for refusing to cut rates and has regularly hinted at the possibility of firing him early, although he acknowledged it was "unlikely," Reuters recalls.
On Tuesday, Trump reiterated that the key rate should be 3 percentage points lower than the current level. The Federal Open Market Committee (FOMC) will meet next week, and almost all experts agree that the rate will remain in the 4.25-4.5% range, as Fed officials want to first see how the duties affect inflation and the labor market.
"We have an incredibly strong economy right now, sweeping everything in our path. We're breaking records," Trump said. - But guess what? People can't buy a house because this jackass is keeping rates too high. And he's probably doing it for political reasons."
Under the Fed law, Trump can't remove a Fed chairman without "good cause." This could be interpreted as "inefficiency, negligence, or malfeasance," but there is no clear definition in the law. The White House has increased pressure on Powell recently, calling for an audit of the Fed's spending on renovations to its Washington headquarters. Powell has rejected the criticism, calling the renovation spending transparent and necessary.
What's being said on Wall Street
Powell's early dismissal could trigger a sharp collapse in the dollar and a rise in U.S. bond yields, Deutsche Bank warned earlier. Wall Street investment bankers, including executives at Goldman Sachs and JPMorgan, warned against the Fed chief's resignation, saying the regulator should maintain independence in its policies.
Still, some economists believe Powell's departure could take away the risk of the Fed losing its independence, writes Business Insider. The controversy surrounding Powell has turned into a debate over the Fed's effectiveness, damaging the regulator's reputation, economist and former PIMCO CEO Mohamed El-Erian wrote on social network X on Tuesday. He noted that Powell's resignation would not be a perfect outcome, but "it's better than what's happening now." "The growing and expanding threats to independence of the Fed will undoubtedly worsen if Powell remains in office," he wrote.
"In terms of market reaction, most of the frequently mentioned candidates to replace Chairman Powell will be able to calm any potential market turmoil," El-Erian added.
Jeremy Siegel, a professor at the Wharton School of Business, expressed a similar view on CNBC's July 18 broadcast. "I'm very concerned about the Fed's independence," said he. - Perhaps in the long run its independence will even be strengthened if Powell resigns."
According to Siegel, if the economy starts to weaken in the second half of the year, Trump will have the "perfect scapegoat" in the form of Powell, who can be blamed for not cutting rates for too long. Siegel also expressed fears that in this situation, Trump may try to convince Congress to give him more authority over the Fed. Siegel named Kevin Hassett and Kevin Warsh, economists who previously worked in the U.S. administration and the Federal Reserve, as possible successors to Powell. Both are considered advocates of looser monetary policy and have been considered in the past to head the Fed.
This article was AI-translated and verified by a human editor
