I Still Think Trump Will Fire Jerome Powell

Yahoo

11-07-2025

Should you desire a break from worrying about how the war will end that President Donald Trump started against Iran, consider worrying about how the war will end that Trump started against the Federal Reserve Board. In Iran, the targets were uranium enrichment and storage sites in Fordo, Natanz, and Isfahan. At the Fed, the target is Jerome Powell.
I predicted in April that Trump would fire Powell. At the time I wrote that Powell's firing was probably imminent; this turned out to be wrong. But I stated further that if not 'in the next day or two,' then Trump would fire Powell 'certainly before Powell's term ends in May 2026.' I still think that last part is correct.
Trump is halfway there already. He promised earlier this month to nominate Powell's successor 'very soon,' which would be almost a year too early. As Louis Krauskopf of Reuters points out, 'The potential for a 'shadow' Fed chair … could sow confusion.' Trump's favored method is to gin up a crisis out of whole cloth to justify taking extreme action against the dysfunction he created. (War against Iran is a departure in that a genuine crisis existed before Trump exacerbated it.) If an early Fed chair nomination destabilizes markets, as Krauskopf predicts, then Trump can 'restore' stability by firing Powell.
Would the Supreme Court let it happen? I think it would. In May, it issued a quickie emergency docket ruling that stated, outrageously, that even though it hadn't yet got around to hearing arguments about whether to overturn Humphrey's Executor v. United States (that's the 90-year-old ruling that bars presidents from firing at will top officials at independent agencies), the high court's majority fully expects to overturn it, so lower courts should quit treating Humphrey's Executor as precedent. In a minority dissent, Justices Elena Kagan, Ketanji Brown Jackson, and Sonia Sotomayor were appropriately appalled.
The quickie ruling raised the question: What about the Fed, whose independence is also protected by Humphrey's Executor? The majority, in effect, promised to cobble together some legal rationale to keep the Fed independent because, you know, the Fed matters, for Christ's sake—the global economy depends on it, unlike the Federal Trade Commission and all those other regulatory agencies where deep-state armchair socialists thwart private enterprise for their own amusement. (That's a loose paraphrase, but it captures the subtext.) The high court was in effect telling the stock and bond markets: Not to worry. We got this.
I have my doubts, not only because drawing a legal distinction between the Fed and other independent agencies will be difficult (since none really exists) but also because, if the court's sole interest is to calm markets, then the quickest solution, if Trump calls its bluff, is abject surrender. Should Trump precipitate a financial crisis by firing Powell in defiance of the Supreme Court, the Supreme Court can't calm the waters by giving Trump a fight. It can only do that by telling Trump: OK, fine, fire the Fed chair, it's not like we ever ruled that you couldn't in an honest-to-God nonemergency decision. How thoughtful of you, Mr. President, to select a replacement in advance.
If Trump is holding all the cards here, he's also holding a lot of anger at Powell (who Trump himself made Fed chair eight years ago). It isn't just that Trump is expressing ever-greater hostility toward Powell on social media (e.g., 'He is truly one of the dumbest, and most destructive, people in Government'). It's that Powell is having an increasingly hard time disguising that the real reason he won't bring interest rates down is the president's own unpredictability in mismanaging the economy.
'Changes to trade, immigration, fiscal, and regulatory policies continue to evolve,' Powell said at last week's press conference, 'and their effects on the economy remain uncertain.'
Translation: Trump keeps imposing arbitrary tariffs, sometimes removing them, sometimes not, and although the United States Court of International Trade has ruled this sociopath's invocation of emergency powers plainly illegal, an appeals court can't decide whether to let him get away with it. The tariffs are obviously inflationary. So is that Big Beautiful Bill of his, because it will double the budget deficit, and his immigration policies may be inflationary too, if they become extreme enough to create a labor shortage.
More Powell: 'We may find ourselves in the challenging scenario in which our dual mandate goals are in tension.'
Translation: 'This idiot's tariffs have the potential to increase inflation while also raising unemployment, something we haven't seen since the 1970s stagflation debacle. So it's really hard to know what the hell it is that we're supposed to do.'
Powell presents all this as a simple matter of reading the data, but it isn't lost on anybody (least of all Trump) that that's a dodge. Trump thinks it's a dodge because he believes that Powell wants him to fail, because Trump is incapable of not taking anything personally. In fact, it's a dodge because the data is the market's attempts to parse exactly how crazy and self-destructive Trump is going to be. For the moment the stock market has embraced TACO, which stands for Trump Always Chickens Out, but that's wishful thinking, because although Trump frequently chickens out, there's no guarantee he will always do so, or do so in time.
If you are the object of this sort of speculation, that's going to be hurtful—too hurtful to recognize as truth. Better to call the person who has to make decisions based on this speculation an idiot.
As Paul Krugman points out in his Substack, Trump isn't wrong to point out that the European Central Bank is behaving quite differently, cutting rates while the Fed refuses to. If Trump weren't president, the Fed would likely be cutting rates too. But the fact that it isn't doesn't prove that Powell is a fool, or that he somehow has it in for the man who appointed him Fed chair. It shows that the European Central Bank doesn't have to contend with an unstable president of the United States. (Or rather, it doesn't have to contend with it as much as the Fed does.)
Krugman further points out that although Scott Bessent predicted Trump's tariffs would minimize inflation by pushing up the value of the dollar, the opposite has happened. The dollar has lost value because the U.S. economy is seen as less stable.
'Trump's childish insults aren't going to make any difference,' Krugman writes, 'except possibly to make Powell even more cautious to avoid giving the impression that he can be bullied.'
I would go further than that. Trump's childish insults deepen Powell's understanding that Trump is out of control and therefore fully capable of wrecking the economy. The result is a power struggle, sure, but it's also something more. It's an expression of condescension or contempt on Powell's part, because the only rational responses to Donald Trump's erratic behavior are condescension or contempt. While there's a lot of things Trump doesn't understand, he can smell condescension or contempt from a mile away, because people have treated him that way (deservedly!) his entire life.
Thus, a vicious circle is set in motion. The more Trump behaves like an asshole, the more Powell doubts Trump's ability to manage the economy; the more Powell doubts Trump's ability to manage the economy, the more Trump will behave like an asshole. The only end point I see in this game is Trump firing Powell. I would very much like to be wrong.