Jerome Powell’s Job Is Safe
Donald Trump is not going to try to remove Jerome Powell as the head of the Federal Reserve or control monetary policy from the White House.
To hear the pundits tell it, we’re on the verge of a crisis over at the Federal Reserve. According to the doomsayers, President-elect Trump is hell-bent on stripping the Fed of its independence, determined to bring Chairman Jay Powell to heel. But this narrative—fueled by decades-old anxieties about politics and central banking—misses a key point: Donald Trump likes to talk, especially when it comes to interest rates, but he isn’t about to dismantle the Fed’s autonomy.
During Trump’s first term as president, some of his advisers did explore the possibility of removing Powell early. What they determined is that the president’s legal authority to do so is questionable, at best. At the very least, it would likely result in a prolonged legal fight if Powell refused to resign.
There are allies of Trump who think this advice was too cautious. They argue that the Fed performs executive functions that, ultimately, have to be exercised under the discretion of the president. A Fed chairman who has lost the confidence of the President of the United States would be removable under the Constitution. And the Supreme Court’s recent precedents likely mean that the president does have removal authority. But even these allies acknowledge that this would require a decision from the Supreme Court. Since Powell’s term will expire a year and half from when Trump takes office, the upside of forcing the legal fight would be small.
The Fed Is Dovish and So Is Trump
What’s more, it is not clear that Trump and the Fed will actually come to loggerheads. The Fed has signaled that it wants to move away from what it views as the currently restrictive stance of monetary policy to a neutral stance. That likely means further interest rate cuts this year and next year. The market expects interest rates will be around 100 basis points lower by the end of next year, which would mean a cut nearly every other meeting. The Fed’s projections in September had the benchmark federal funds rate coming down to between 3.25 and 3.5 percent, 125 basis points lower than today.
Trump has said time and again that he prefers lower interest rates. So, he’s unlikely to object to a dovish approach or find himself advocating for cuts that Powell is not inclined to take. So, unless the Fed quickly reverses course to start hiking interest rates, something the market and the Fed now view as not even remotely likely, there may not be a conflict at all.
What we’re likely to see instead is Trump’s tendency to vocalize his economic opinions, particularly on matters that will impact his administration’s agenda. He’ll undoubtedly weigh in on the Fed’s moves, which isn’t unique—presidents have been grumbling about Fed policy since the institution was born. But as for an actual showdown or White House intrusion into Fed governance, that’s extremely unlikely. We may wind up with Trump cheering on the Fed as it cuts rates several times during his first year in office.
Trump Derangement Syndrome Rides Again
So, why the fuss? Every time Trump tweets about monetary policy, headlines flare up, speculating about a dismantling of the Fed’s autonomy. But Trump’s words won’t change the essential architecture of our central bank. He knows that any overt attempt to fire Powell or drastically overhaul the Fed’s structure would create unnecessary turmoil in the financial markets—markets Trump all too often looks to as a measure of his economic success.
Some of the attention paid to this issue looks like a product of Trump derangement syndrome. Some analysts and pundits insist on always interpreting Trump’s plans in the worst light possible. They forecast Trump doing destructive things because they cannot get around the imaginary demon Trump of their imaginations.
Even if some of Trump’s prominent supporters advocate curtailing Fed independence, this should be viewed as strategic posturing. When Sen. Mike Lee (R-UT) advocates abolishing the Fed, he moves the political discussion in a way that puts Trump’s policy of critiquing the Fed in the center rather than the fringe of the political discussion. Similarly, Elon Musk’s endorsement of reduced Fed independence may catch attention on X and cheers from Trump’s more “based” supporters, but it’s a far cry from influencing actual legislative or executive policy. Musk may enjoy sparring with the establishment, but he isn’t positioned to dictate terms to the Fed or influence Trump’s approach to economic governance.
This doesn’t mean the critics of the Fed do not have a point. The Fed allowed the inflation crisis to occur by keeping interest rates too low while President Joe Biden’s reckless fiscal policy pushed the economy over the edge. It waited too long to respond, mistaking the initial signs of inflation as a “transitory” development. The rate cut in September, just prior to the presidential election, was hubristic and unnecessary when the Fed could have simply waited until after the election. And, as we reported today at Breitbart News, the Fed is overwhelmingly dominated by Democrats, undermining its claims to be nonpartisan and independent.
All this means that the Fed needs to be reformed. But much of the work of that reform will come not from Trump overthrowing monetary policy but through the normal channels of Congressional oversight and internal review.
In short, the panicked predictions of a Fed under Trump’s thumb are misplaced. Expect more chatter, maybe even a few policy critiques. But for those who are paying attention to reality rather than blather, the Fed’s independence is here to stay.
