President Donald Trump has escalated public tensions with Federal Reserve Chair Jerome Powell, calling him a "moron" while simultaneously pledging not to fire the central bank head despite growing frustration over the Fed's reluctance to cut rates.
Speaking at an event at the White House on Thursday, Trump delivered his sharpest criticism of Powell's monetary policy approach, stating that a one percentage point rate cut could save the US $300 billion annually, while a two-point cut could create a savings of $600 billion.
Why Trump Wants to 'Force Something'
Trump's latest verbal assault marks the third time in two days that his administration has publicly targeted Powell. It follows similar criticisms from Commerce Secretary Howard Lutnick and Vice President JD Vance, who called the Fed's stance a "monetary misstep."
The coordinated pressure campaign arises from the administration's growing impatience with the independence of the central bank, particularly as Trump faces re-election pressure and seeks to demonstrate economic leadership.
Despite continuously calling Powell "Too Late" and questioning why firing him is controversial, Trump has not threatened to dismiss him, instead ominously implying that he "may have to force something" if rate cuts do not occur soon.
The timing of Trump's criticism appears strategic, as recent economic indicators show inflation cooling and energy prices dropping due to increased domestic drilling activity under his "drill, baby, drill" energy policy.
Powell's current term as Fed chairman will expire in May 2026, and Trump has hinted that an announcement about his nominee for the next Fed chair position could come soon.
Harvard legal experts argue that while Trump may have constitutional authority to remove Powell, such a move could cause severe market volatility and undermine the Fed's credibility as an anti-inflationary body, potentially causing long-term interest rates to spike even if short-term rates are cut.
The President's Pressure Campaign Increases the Debate over Fed Independence
The escalating confrontation between Trump and Powell is a fundamental conflict over the independence of the Federal Reserve with profound constitutional and economic implications.
Trump's frustration stems from his belief that the current interest rate environment places an unnecessary burden on federal borrowing costs, especially as the government faces increasing short-term debt obligations approved under the Biden administration.
The president argues that Europe has implemented ten rate cuts while the Fed has not made any, despite similar economic conditions and declining inflation indicators.
Legal scholars argue that while the Federal Reserve Act of 1913 allows for the removal of a governor "for cause," recent Supreme Court rulings have gradually eroded the traditional "for cause" protections that independent agencies have enjoyed for the past 85 years.
Daniel Tarullo of Harvard Law School, a former Federal Reserve board member, stated that three conservative justices have hinted at the possibility of treating the Federal Reserve differently from other agencies, which could create a separation based on the historical precedent of central banking dating back to the First and Second Banks of the United States.
However, market dynamics may protect Powell more than legal statutes, as any effort to remove the Fed chair could provoke severe and immediate market reactions, counterproductive to Trump's economic goals.
Expected market volatility is a strong deterrent, particularly as Treasury Secretary Scott Bessent focuses on keeping the 10-year Treasury bond yields stable, which plays a crucial role in economic investment decisions.
Recent economic indicators have bolstered Trump's argument for immediate monetary easing. Inflation data shows prices remain stable and energy costs are decreasing due to increased domestic oil production.
The encouraging producer price index in May has alleviated concerns about a spike in inflation due to tariffs, encouraging the administration to increase pressure on the Fed as the market increasingly expects a rate cut by the end of this year.