The president of the American federal reserve, Jerome Powell, faces attacks by Donald Trump, who is now threatening to dismiss the head of the central bank.
Such a decision would be unprecedented. The president historically respected the independence of the central bank and was held away – even if there was disagreement on the Fed policy.
But, of course, it seems that Trump follows his own game book.
“Powell’s termination cannot come quickly enough!” Trump said on social networks last week.
The president of the FED took office for the first time in 2018 after a nomination of Trump, and was then renamed by Joe Biden in 2022. Although his mandate should end in May 2026, several reports suggest that Trump plans to dismiss the president before his mandate is increasing.
Here is what we know that happens between Trump and the Federal Reserve.
What is the federal reserve doing?
As a central bank, the Fed manages the money supply in the United States, mainly by fixing the interest rate. When you define it, the Fed considers the inflation rate and the labor market, which it calls its “double mandate”: higher interest rates could reduce inflation, but negatively affect the labor market, while lower interest rates could do the opposite.
In recent years, from its second term as Trump, the central bank has attempted to reduce inflation, which culminated at 9% in June 2022.
To do this, the Fed increased interest rates to a higher level of several decades between 5.25% and 5.5%. A few years earlier, at the height of the pandemic in 2020 and 2021, interest rates were almost zero. This made it cheaper to borrow money, in particular by removing mortgages.
At the end of last year, the Fed lowered interest rates, which are now 4.25% to 4.5% – an entire point lower than what they were a year ago.
The American stock markets are very sensitive to the decisions of the Fed. Actions started to climb after September, when the Fed started reducing rates.
Why is Trump attacking the federal reserve?
Since Trump resumed his functions, Fed officials held two meetings in January and March, during which they could have changed interest rates. In both, they refused to touch the rates, citing economic uncertainty.
After Trump presented his new list of prices, he declared on social networks that he expects Powell to reduce interest rates. “It would be an ideal moment” for rate drops, Trump wrote on social networks. “Cut interest rates, Jérôme and stop doing politics.”
From Trump’s point of view, reduction rates could compensate for the impact that its prices have on the US stock market. But for Fed officials, this could exacerbate inflation.
Powell – which is extremely careful with its public remarks – made statements that have clearly indicated that the Fed thinks that Trump prices will increase prices, which makes it much less likely that the central bank would decrease rates.
“Our obligation is to keep the expectations of inflation in the longer term well anchored and to ensure that an ad hoc increase in the price level does not become a problem of inflation in progress,” he told Chicago last week.
It seemed to trigger Trump. “If I want it, he will be released from there very quickly, believe me,” the president for journalists told the oval office on Thursday. “I’m not happy with him.”
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Can Trump legally animate the Fed chair?
The clearest answer: right now, probably not, but things could change.
Powell said on Wednesday that the independence of the Fed “is a matter of law”.
“We are not removable, except for the cause,” said Powell. “The independence of the Fed has fairly wide support between the two political parties and the two sides of the hill.”
But he also mentioned a case passing by the Supreme Court which could modify the power that the president has on the federal agencies, which came out of Trump who draws an official with the National Labor Relations Board. We do not know how the court will rule, but this allowed the layoffs to stand up, canceling a lower court.
“I don’t think this decision applies to the Fed, but I don’t know,” Powell said. “This is a situation that we monitor carefully.”
The next meeting of the Fed Board of Directors is May 6 and 7. Trump is probably trying to put pressure on the Fed before that, but it is unlikely that civil servants will move.
What is the case of the Fed for the independence of the White House?
The Fed, which has enormous power over the economy, must be very careful with each decision it makes.
The measures taken by the central bank can affect the stock market, the value of the US dollar and government obligations – which, in turn, affect the American economy.
On the independence of the Fed, Powell said that those responsible “will only make our decisions according to our best reflection, according to our best data analysis and how to achieve our double mandate objectives that we can best serve the American people”.
“We will do what we do strictly without taking into account political or other factors,” he said.
