Donald Trump and Jerome Powell’s war, the Fed is far from over

As a temporary distraction The story of Jeffrey EpsteinDonald Trump visited the Fed’s headquarters last week, an independent agency whose former president has largely been far from its purpose. Lens trump card and Jerome PowellThe Fed chairman wore a hard white hat and quickly entered the home pages of social media and major news organizations as they visited the site’s construction costs (when the site is undergoing renovation). However, for the president, the visit is also about something more substantial: continuing a long stress movement for Powell, Powell’s long stress movement, looking a little uncomfortable as he took Trump through the room stripped back to the walls and beams.

Since taking office for the second time in January, Trump has repeatedly criticized Powell, whom he appointed in 2017, and his agency for not cutting interest rates quickly. Some of the names he uses are “Numbskull”, “Moron” and “Late Mron”. So far, Trump has been trying to fire Powell, whose term continues until next May. But while verbally attacking him and demanding changes in policy, he is focusing on scripts from other populist authoritarians, including Viktor Orbán of Hungary and Recep Tayyip Erdoğan of Turkey. In 2018, Erdoğan issued a presidential decree giving him the power to dismiss the governor of the Turkish central bank. Between 2019 and 2024, he forced four governors to demand low interest rates regardless of high inflation. The reasons for the conflict between strong men and central bank chiefs are not difficult to distinguish: they often have power, promising to improve the livelihoods of their supporters by promoting employment and reducing the cost of living. But an independent central bank denies that they control a key tool to quickly stimulate the economy, namely the ability to lower interest rates. Furthermore, the concept of independent power centers is offensive for any self-respecting strongman, especially a clear design aimed at taking key policy decisions from the political field. Conflict is actually guaranteed.

Shortly before Trump and Powell, I spoke with Selva Demiralp, a professor of economics at Turkish University of Sciences, who worked at the Federal Reserve from 2000 to 2005 after receiving his Ph.D. at the University of California, Davis. She recently co-authored a cross-country study that shows that financial markets often respond to populist leaders’ pressure on central banks. In Türkiye, Erdoğan is determined that low interest rates lead to capital fleeing the country, the collapse of currency value, higher inflation, and a longer and slower period of economic growth that some economists call depression. The U.S. economy is stronger than the Turkish economy in 2018, and the U.S. dollar currency is much more than the Turkish lira. Still, Demiralp said she saw similarities between Trump and Erdogan, who eventually gave up and brought in a more independent central banker.

“What really matters in all countries where populist pressures are present is whether you have strong institutions,” she said. Since 1951, the Treasury Department and the Federal Reserve have reached an agreement that allows central banks to set interest rates independently, which the president usually respects, although some of them, most notably Richard Nixon, have privately tended to lower interest rates or keep them low. What sets Trump apart is the intensity and transparency of his stress movement and his personal attacks. During his first term, despite the recent appointment of Powell, Trump repeatedly criticized him, saying he was ignorant and claimed that the Fed posed a greater threat to the U.S. economy than China. Indeed, Demiralp and her co-author found that Trump scolded the central bank more frequently than Erdoğan. “But in the market, the response is much less.” “The market essentially believes that the Fed will not succumb to him.”

This assumption turned out to be good. Even so, since Trump took office for the second time, he has begun to consolidate his control over the entire federal government, including allegedly an independent agency – the Fed’s autonomy has been questioned again. On Wall Street, many find comfort in Trump’s beliefs No steps are taken That would seriously exaggerate the market, such as firing Powell. They also know that even if he does try to fire, he may encounter a court overturn. In May, the Conservative majority in the Supreme Court said the president had the right to remove his post but also to eliminate the heads of so-called independent institutions. Propose a little Saying that the president’s removal does not necessarily extend to the Fed’s head and his policymakers, who can only terminate “for reasons”. This is widely interpreted as telling Trump the judge to retreat from his efforts to remove Powell.

Trump and his allies have not given up – for the moment, they have been looking for legal ways to dismiss the Fed chair that might be called through the High Court. They introduced him to handle expensive renovations at the Federal Reserve headquarters, which was built during the Great Depression, and a building was built across the street during the Great Depression. Last week, the republican Anna Paulina Luna, a Florida Republican, called for a lawsuit in the Justice Department to sue Powell for allegedly lying to Congress, which cost it dropped from $1.9 billion to $2.5 billion. It is fair to ask whether the project can be done at a lower cost, but Trump and Republicans are far from being honest: They told Tar Powell and the Federal Reserve that the website said that excess costs are the product of design changes; rising prices of materials, equipment and labor; and other unexpected issues, including asbestos and toxic soil.

Last week, Trump was happy to seize the opportunity to publicly lure the Fed chairman into becoming the first president to visit the Central Bank headquarters unless formally ceremonial. But he seems to have given up on his prospect of getting rid of Powell before his term ends, at least so far. After completing the tour, Trump told reporters that firing him would be a “big move” and would be unnecessary anyway. He imposes lower interest rates on the case with fieldwork, and he says Powell is “to do the right thing.”

Of course, Trump often changed his mind: Just a few weeks ago, he showed a draft letter to some House Republicans in Powell. (Trump then denied that there was a plan to fire him.) The first chance that the president would return to attack mode would be on Wednesday, when the Fed’s next policy meeting ended. He called for interest rates as low as one percent. Powell and his colleagues may announce their benchmark interest rates of 4.25% to 4.5%. Inflation is still above the Fed’s target at 2%, and in some parts of the economy, Trump’s tariffs are starting to raise prices.

Assuming Trump really can’t fire Powell, he will soon have a chance to install a more stable replacement who will take over after Powell’s term ends. But the Fed chairman did not set interest rates alone: a policy committee of twelve people decided them by a majority. Most members of the committee will remain unappointed officials Trump has not appointed, and they seem unlikely to deduct it easily. “I’m a former Fed economist and I know the Fed will fight to protect its policy space,” Demiralp told me. Meanwhile, she added: “I think Trump will continue his pressure campaign.”