Why Trump’s attacks on Jerome Powell are raising fears for the US economy

United States President Donald Trump has spent months attacking US Federal Reserve chairman Jerome Powell for not moving faster to lower interest rates.

While Trump is not the first president to clash with the head of the US central bank on monetary policy, he has gone further than his predecessor by threatening to fire Powell and pressuring him to resign.

Trump’s barbs have raised concerns about the prospect of the Fed losing its independence, which would have serious ramifications for the US economy.

What has Trump said about Powell?

Trump’s main gripe with Powell has been the Fed’s decision to keep its benchmark interest rate in the range of 4.25 to 4.50 percent.

The US central bank has resisted calls to lower the rate, which would spur economic growth by reducing borrowing costs across the economy, to keep a lid on inflation.

While inflation remains modest at present, Powell and his colleagues fear that prices could rise significantly in the coming weeks and months due to Trump’s tariffs.

Trump has argued that the rate should be as low as 1 percent.

Trump has been at odds with Powell since his first term, when he nominated him to the top job, but the president began ramping up his attacks in April, when he branded the monetary policy chief “a major loser” and “numbskull” whose “termination cannot come fast enough”.

Since then, Trump has made conflicting remarks about whether he intends to fire Powell, and last week asked a group of Republican lawmakers for their opinion on the matter.

While Trump continues to blast Powell on social media, other top White House officials have joined the condemnation.

Earlier this month, Office of Management and Budget Director Russell Vought accused Powell of mishandling the “ostentatious” $2.5bn refurbishment of the Fed’s headquarters in Washington, DC.

On Tuesday, US Treasury Secretary Scott Bessent accused the Fed of “persistent mandate creep into areas beyond its core mission” and called for a review of the renovation project.

Today in a CNBC interview, I called for a review of the Federal Reserve. It is my belief that the central bank should conduct an exhaustive internal review of its non-monetary policy operations. Significant mission creep and institutional growth have taken the Fed into areas that…

— Treasury Secretary Scott Bessent (@SecScottBessent) July 21, 2025

Does Trump have the power to remove Powell?

The Fed chair is harder to remove than the heads of other independent government agencies.

Under the Federal Reserve Act of 1913, the president may remove the head of the central bank “for cause” – widely interpreted to mean proof of corruption or malfeasance.

A landmark 1935 Supreme Court ruling further insulated the Fed from political pressure by explicitly stating that the heads of independent agencies cannot be removed without cause.

David Wilcox, a senior fellow at the Peterson Institute for International Economics who served on the staff of the Federal Reserve Board, said the Trump Administration appeared to be zoning in on the Fed’s renovation project to create a pretext to fire Powell.

“The way they’re doing that is they’re drumming up a lot of controversy around the expenses that have been incurred and will be incurred in the renovation of two of the historic buildings,” Wilcox told Al Jazeera.

“The drumbeat of criticism seems to be that Powell allegedly has mishandled this situation, and concern is that this very small-scale situation might be somehow blown up into an excuse for firing Powell ‘for cause’.”

Is there any precedent for Trump’s campaign against Powell?

In the late 1960s and early 1970s, presidents Lyndon B Johnson and Richard Nixon – a Democrat and a Republican – both famously exerted pressure on the Fed chair to keep interest rates low.

Some historians have theorised that Nixon’s cajoling of then-Fed chair Arthur Burns stopped him from rolling out rate hikes that could have halted the emergence of double-digit inflation in the mid-1970s.

“What does compromising central bank independence do? It runs the possibility of giving some kind of short-term gain for long-term pain,” Mark Spindel, the CIO of Potomac River Capital and a Federal Reserve historian, told Al Jazeera.

“And politicians have short memories.”

Construction work is carried out the the US Federal Reserve building in Washington, DC, on July 14, 2025 [Jonathan Ernst/Reuters]

How will markets react if Powell is removed?

Suggestions that Trump could remove Powell have roiled markets on several occasions.

On Wednesday, the benchmark US S&P 500 briefly fell by 0.7 percent, and the US dollar sank 0.9 percent, following reports that Trump had asked Republican lawmakers whether he should fire the Fed chair.

Stocks recovered a short time later after Trump denied that he had any plans to remove Powell, the latest example of what investors have dubbed the “TACO Trade” – short for “Trump Always Chickens Out”.

If Trump were to follow through on his threat to remove Powell, the stock market and confidence in the US economy would take a major hit, Wilcox said.

“It would probably be reflected in an increase in the expected inflation that’s built into borrowing rates. It would be reflected in an increase in the risk premiums that are built into long-term Treasury rates,” he added.

“It would probably be reflected in a weakening of the US dollar because of a loss in confidence that would follow from the knocking down of yet one more signature aspect [of the economy] that has been taken for granted for many decades.”

Why might Trump not want to fire Powell?

Fed historian Spindel said Trump may ultimately decide to keep Powell despite his threats.

The Fed chairman’s term expires in May next year, Spindel said, and, until then, Trump can use Powell as a scapegoat for any problems with the economy.

As a businessman, Trump also considers the stock market an important barometer of success, Spindel added.

“The market is an important governor on his policies,” he said.

“He has a large constituency in the corporate sector. He obviously enjoys support from the middle and upper wealthy class, and he doesn’t want to torpedo the equity market.”