Despite Trump's escalating criticism of Powell last week, he publicly stated on Tuesday and accused the media of misreporting his intention to do so.
On April 23, Eastern Time, sources revealed that the White House had taken Trump's public criticism of Powell seriously. Some White House lawyers even privately studied legal options for removing Powell, including whether it could be done 'for cause'. According to the law, Fed governors can only be removed for cause before the end of their terms, and the courts usually interpret 'for cause' as malfeasance or misconduct.
Trump's change of mind is related to Treasury Secretary and Commerce Secretary. Sources said they warned Trump that firing Powell could trigger market turmoil and legal disputes. The Commerce Secretary told Trump that dismissing Powell would not change interest rates because other Fed members might maintain a similar monetary policy.
The market voted with its feet, and Trump gave up the idea of firing. The media pointed out that Trump's statement of 'not planning to fire Powell' shows that he and his advisors are still closely watching the reactions of Wall Street and big businesses. Although Trump insists that he is not affected by market fluctuations, he and his advisors have clearly noticed the market's resistance to his radical trade and economic measures and are gradually making compromises. After all, the White House spokesperson once said that the president's advisors would provide suggestions, but the ultimate decision - maker is the president himself.
Tesla CEO Elon Musk said in a Tuesday earnings call that he would advocate for lower tariffs in his conversation with the president. Musk said, 'It's up to him whether to take my advice.' Due to the decline in Tesla's stock price, he will reduce his working time on DOGE, and Tesla's global sales have also declined because of Musk's relationship with the government.
Trump frequently criticized Fed Chair Powell during his first term and tried to influence Fed decisions through social media, but with limited effect and no substantial impact on the Fed's independence. However, the market's concerns about the Fed's independence have significantly escalated this time, mainly for two reasons. First, Trump is more inclined to challenge institutional and legal norms in his second term. The US Department of Justice is trying to overturn a 90 - year - old legal precedent, which is an important safeguard to prevent Fed officials from being removed before the end of their terms. Many legal experts believe that if the precedent is overturned, the Fed's independence will be seriously threatened. Second, Trump's tariff scale is much larger and wider than in his first term, which may lead to more serious inflation problems this year. Trump's tariff policy undoubtedly makes it more difficult for the Fed to balance inflation and economic growth.
Firing Powell would be too costly and have limited results. In fact, Trump faces many obstacles in firing Powell. On the one hand, the Fed's independence is regarded as an important pillar of the US financial system by bond investors. Many investors believe that the Fed should not be subject to government intervention. If foreign investors worry that the US government will interfere with the Fed to tolerate higher inflation, they may reduce their purchases of US Treasuries, thus pushing up interest rates. A former senior advisor and chief economist at the San Francisco Fed said last week that if Trump successfully forced the Fed Chair to step down, the market reaction would be catastrophic. The pain would come so quickly and severely that the president would be forced to immediately reverse his decision, or face a systemic financial crisis. On the other hand, many Wall Street analysts believe that even if Trump fires Powell, it will not easily change the Fed's monetary policy because other Fed governors may not support interest rate cuts. For example, Trump promoted Fed Governor Bowman, whom he appointed during his first term, to the vice - chair for bank supervision last month. Bowman is one of the most outspoken Fed officials and has warned of the risks of cutting interest rates too early or too quickly.
Powell has always said that he does not think the Fed's independence is under threat. He believes that if the Fed Chair is fired due to policy disagreements, it will put great pressure on future Fed Chairs and may affect their decision - making freedom. To protect the Fed Chair's ability to make decisions without political pressure, Powell believes that preparations must be made for such possible legal conflicts, even if he may bear the costs personally.
The issue of the Fed's independence is not new. Since the high inflation in the 1970s, the Fed has attached great importance to its independence. At that time, President Nixon pressured the Fed to loosen monetary policy, which led to severe inflation. The high - inflation problem was finally curbed through an economic recession in the early 1980s. Although the Fed's independence is not clearly defined by law, this historical lesson has prompted the Fed, the president, and Congress to reach a consensus that the Fed should have considerable independence to ensure low inflation and a healthy job market. In the 1990s, many central banks in other countries also began to gain greater independence, allowing them to set interest rates independently without government intervention, so as to better serve the long - term development of the economy.