Firing Powell would do nothing to help Trump on interest rates
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Quick Fix
For a moment on Wednesday, it looked like President Donald Trump would finally attempt the improbable and fire Federal Reserve Chair Jerome Powell. But shortly after reports surfaced that Powell could soon be headed for the exits, Trump told reporters gathered in the Oval Office that the central banker's job is safe — at least for now.
'I don't rule out anything, but I think it's highly unlikely,' Trump said, adding that he would only fire Powell in the event of misconduct related to the Fed's costly headquarters renovation. He then reverted to his most frequent line of attack: 'I think he's not doing a good job. He's got a very easy job to do. Know what he has to do? Lower interest rates.'
The battle over Powell's future at the Fed — and the future of the Fed itself — isn't going away. So, let's get this out of the way: Firing Powell for cause would do nothing to achieve Trump's goal to quickly lower borrowing costs.
For one thing, Powell could mount a legal challenge to keep his job by arguing that the 'for cause' removal was actually a pretext for Trump's public opposition to his stance on rates. The Supreme Court has signaled that the president can't summarily dismiss central bankers over policy decisions, and Powell allies have noted that Trump often mixes critiques about the Fed's renovation with complaints about monetary policy. That could help Powell if he sought an injunction or court-ordered reinstatement to serve the remainder of his term as chair, which expires in May.
'There's no way that Donald Trump is going to intimidate Jay Powell into doing something he doesn't want to do,' former Fed Vice Chair Donald Kohn said Wednesday.
In the meantime, investors and CEOs would have to wrestle with major questions about the White House's influence over rate decisions. The central bank's relative independence from political interference is fundamental to faith in U.S. markets and is widely viewed as a bulwark against inflation. Wall Street leaders are throwing up warning flags. As JPMorgan Chase CEO Jamie Dimon cautioned this week, 'playing around with the Fed can often have adverse consequences.'
Stocks sank during the brief window on Wednesday when it appeared as though Powell's days were numbered. Perhaps more importantly for Trump, who has been open about his sensitivity to bond market fluctuations, the 10-year Treasury yield — a key determinant of financing costs charged to consumers and businesses — spiked.
'If your goal is lower rates, that may not be the most direct route,' said Mike Pugliese, a senior economist at Wells Fargo who covers monetary and fiscal policy.
But suppose Powell acquiesced in this (hypothetical) firing, or lost a legal challenge related to that dismissal. It would still take time for Trump to nominate a replacement and get that person confirmed by the Senate. And given the value lawmakers from both parties place on Fed independence, that would represent a major political challenge against a confounding economic backdrop.
Republican Sen. John Kennedy, a member of the Senate Banking Committee, told reporters that he doesn't believe 'a president, any president, has the authority to fire the Federal Reserve chair.' And Sen. Kevin Cramer (R-N.D.) – though highly critical of Powell's stewardship — told Jasper Goodman that firing Powell with less than a year remaining as chair could 'infuse chaos' at a time when Fed policymakers have already indicated they're looking to lower rates as soon as they can.
Until a replacement is confirmed, members of the Federal Open Market Committee would be able to appoint their own chair. Over the last few weeks, many Fed officials — with the notable exception of Vice Chair for Supervision Michelle Bowman and Gov. Christopher Waller — have echoed Powell's assertion that the central bank is in no rush to lower interest rates until there's greater clarity around how Trump's new tariffs have affected prices and employment.
This week's inflation report contained evidence that tariff-related price increases are starting to take hold — something Powell has warned as a possibility for months. After the report was released, Dallas Fed President Lorie Logan and Boston Fed President Susan Collins both said the central bank doesn't need to cut rates soon.
What's more, while the Fed has already ceded ground to the White House on bank regulation — and aligned closer to Trump's priorities in areas like climate policy and diversity — there's far less institutional appetite to do the same with regard to rates.
'They already compromised on regulation. They've compromised DEI, climate change — all those things,' Kohn said. 'But monetary policy is the core.'
IT'S THURSDAY — As always, send MM tips and pitches to Sam at ssutton@politico.com.
Driving the Day
Federal Reserve Governor Adriana Kugler speaks at a Housing Partnership Network symposium at 10 a.m. … Fed Governor Lisa Cook speaks at the National Bureau of Economic Research's Digital Economics and Artificial Intelligence Conference at 1:30 p.m. … House Financial Services ranking member Maxine Waters speaks at a Brookings event at 11:30 a.m. … Fed Governor Christopher Waller speaks at a Money Marketeers of NYU dinner at 6:15 p.m. …
What's next – Powell's fate may hinge on the ability of Trump's top allies to convince the president that the Fed's insulation from political influence is a benefit to his own agenda, Victoria Guida reports. 'Having a Fed chair who is not simply a yes man is a way to help head off the kind of damaging inflation that sank Democrats in 2024,' she writes. 'That is, investors and businesses have to believe that the central bank is willing to do what's necessary to avoid inflation, even if that means higher rates.'
Thune on Powell — 'I think the markets want an independent Federal Reserve. I think they want a central bank that isn't subject to the whims of politics,' Majority Leader John Thune of South Dakota said in an appearance on Fox News on Wednesday night, adding that he thinks Powell will serve out his term. 'My assumption is – based on what the president said today —that he is not going to do anything about this any time soon.'
— Despite Trump's repeated attacks on Powell, the Fed chair's support among Republicans has actually increased since Trump returned to office, The NYT's Ruth Igielnik reports.
Green light for crypto bills — House conservatives struck a late-night deal with GOP leaders on Wednesday to clear the way for the chamber to take up a slate of cryptocurrency legislation, our Jasper Goodman reports from Capitol Hill.
The conservative hard-liners, who tanked a procedural vote on the crypto bills on Tuesday and then froze the House floor for much of the day Wednesday in opposition to the effort, backed down after GOP leaders agreed to attach a provision that would ban a central bank digital currency to a must-pass defense authorization bill later this year.
The GOP rebels had been pushing to merge the CBDC ban bill with a sweeping crypto market structure overhaul, but that plan met resistance from the leaders of the House Financial Services and Agriculture committees. Most Democrats oppose a CBDC ban, and the chairs of those panels didn't want to kill off Democratic support for their market structure proposal, which they are hoping to send to the Senate with widespread bipartisan buy-in.
The House is now set to vote in the coming days on Senate-passed stablecoin legislation that will then go to Trump's desk, Financial Services Chair French Hill's sweeping market structure bill and a third measure that would ban a CBDC.
The deal to unfreeze the floor came together following a late-night meeting in House Speaker Mike Johnson's office. Trump called in at the very end and was briefed on the agreement, according to two people in the room granted anonymity to describe a private discussion. 'He's happy with it,' one of the people said.
The Economy
Mixed signals — The Fed's survey of regional business contacts found that economic activity 'increased slightly' in June. Still, 'Uncertainty remained elevated, contributing to ongoing caution by businesses.' The Fed's gauge for domestic industrial capacity and production reflected an expansion, improving on previous months.
— And wholesale price inflation was flat in June, according to the Labor Department's Producer Price Index. Nevertheless, economists at Bank of America Global Research expect the core Personal Consumption Expenditures index — one of the Fed's most closely watched indicators — to climb to 3 percent by July.
Wall Street
A good quarter for Big Banks — Market turmoil triggered by fast-shifting tariff policies helped pump up trading businesses at Goldman Sachs and Morgan Stanley, according to The WSJ.
Healthy consumer? — At BofA, which boasts a large consumer footprint, CEO Brian Moynihan told Bloomberg that consumers are 'continuing to spend more.'
'They've got money in their accounts, they're employed and the wage growth has been relatively strong. So they're in pretty good shape,' he said.
We'll get an update on June retail sales from the Census Bureau at 8:30 a.m.
On the Hill
Short memories — Sen. Elizabeth Warren (D-Mass.) is warning that the GOP's policy mix of pro-crypto legislation and financial deregulation is drawing uncomfortable parallels to the events that led to the global financial crisis, Katherine Hapgood reports.
Senate Small Biz markup — The Senate Small Business panel passed legislation out of committee that would double Small Business Administration 7(a) manufacturing loan limits to $10 million and double the statute of limitations on SBA COVID-era fraud to 10 years, Katherine reports. The bills passed by unanimous voice vote during Wednesday's markup.
At the White House
Never mind — Trump's immigration crackdown is starting to dent his approval ratings (and the supply of labor). Just 41 percent of Americans polled by Reuters/Ipsos supported the president's immigration agenda.
The Epstein saga — From Jake Traylor: 'President Donald Trump on Wednesday trashed many MAGA members, condemning their ongoing push for files related to Jeffrey Epstein and bemoaning that they are playing into Democrats' hands.'
Trade
Softening — From Bloomberg: 'Trump has dialed down his confrontational tone with China in an effort to secure a summit with counterpart Xi Jinping and a trade deal with the world's second-largest economy, people familiar with internal deliberations said.'
Big fish — The president also said he'll send letters to 150 smaller countries announcing their tariff rates, Doug Palmer reports.
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