President Donald Trump has escalated his ongoing dispute with the U.S. Federal Reserve, warning that he could take the unprecedented step of ousting Fed Chair Jerome Powell if he does not comply with the administration’s demand for interest rate cuts.
Trump, who has repeatedly called for rate cuts to stimulate economic growth amid his tariff plans, openly threatened to fire Powell, whose second term as Fed chair ends in May 2026. The president’s remarks on Thursday were direct: “If I want him out, he’ll be out of there real fast, believe me.”
Powell, however, has remained steadfast in his position, emphasizing the importance of the Fed’s independence in monetary policy. He reiterated this week that he has no plans to step down early, stating that he views the central bank’s autonomy as a “matter of law.”
The White House’s public pressure on Powell comes at a time when the U.S. economy is facing challenges due to the administration’s tariff policies, which many economists believe will exert upward pressure on prices, dampening economic growth in the short term. This dynamic makes it unlikely that the Fed will cut rates in the near future, as policymakers aim to bring inflation closer to its long-term target of two percent.
Diane Swonk, chief economist at KPMG, noted that the conflict between the White House and the Fed is growing serious, saying, “Clearly, the fact that the Fed chairman feels that he has to address it means that they are serious.” Stephanie Roth, chief economist at Wolfe Research, also weighed in, asserting that while a confrontation between the two sides is likely, the Fed is unlikely to yield to political pressure.
The issue stems from the tension between Trump’s desire for rate cuts to fuel his economic agenda and the Fed’s cautious stance, as it seeks to manage inflation and economic stability. The administration’s tariffs, which aim to exert pressure on other economies, are expected to reduce economic growth in the U.S., keeping inflation levels away from the Fed’s target.
The president’s suggestion that he could fire Powell raises concerns about the independence of the Federal Reserve, which is central to the country’s monetary policy framework. Legal experts argue that the president does not have the authority to dismiss the Fed chair without just cause, as the institution is specifically designed to be insulated from political influence. Mark Zandi, chief economist at Moody’s Analytics, emphasized that impairing the central bank’s independence would have significant negative consequences for the U.S. economy, citing that countries without independent central banks often face higher interest rates and weaker currencies.
One ongoing legal challenge that could threaten the Fed’s independence is the Humphreys Executor case, which seeks to challenge a 1935 Supreme Court decision that restricts the president’s ability to fire the heads of independent agencies. If successful, it could grant the president more power over the Federal Reserve.
Despite the administration’s efforts to exert influence, the bond markets present an ultimate check on presidential authority. Recently, the rise in U.S. Treasury yields and a drop in the dollar signaled growing investor concerns about the stability of the U.S. economy in light of the trade war. This has already led the Trump administration to reconsider some of its tariff plans, as soaring bond yields could put pressure on financial markets and the economy.
“You can’t control the bond market. And that’s the moral of the story,” said Diane Swonk, underscoring the importance of maintaining an independent Fed to ensure economic stability.
As tensions between the White House and the Federal Reserve escalate, the outcome could have significant implications not just for U.S. monetary policy, but for global financial markets as well.
