Finance Minister Scott Bessent is the key factor that helped Fed Chair Jerome Powell retain his position, despite President Trump's previous consideration of firing him.
Scott warns Trump that firing Powell would cause legal and political chaos, undermining market confidence. He analyzes three significant reasons why this decision would be detrimental.
MAIN CONTENT
Scott Bessent persuaded Trump not to fire Jerome Powell to avoid harming the markets and the stability of the central bank.
Legal risks and political opposition from Republicans complicate and make Powell's dismissal disadvantageous.
Tensions surrounding the $2.5 billion office renovation project budget have been used by some Trump officials as reasons to push Powell out.
Why did Scott Bessent prevent Trump from firing Jerome Powell?
Scott Bessent, U.S. Secretary of the Treasury, convinced President Trump to keep Powell in office by presenting three notable arguments based on market and political understanding.
He emphasizes: First, the financial market is stable and positively responding to Trump's policies. Second, the Fed has hinted at the possibility of two rate cuts this year. Third, firing could lead to prolonged legal disputes and create political fragmentation during the election year.
"If you fire Powell right now, he will sue immediately. The legal process will drag on for months, bringing only trouble and no benefits."
Quote from Scott Bessent, U.S. Secretary of the Treasury, 2023 (according to Wall Street Journal)
Scott also emphasizes that maintaining Fed independence is crucial. According to him, if the Fed leadership is seen as easily replaceable due to policy disagreements, the central bank's credibility would suffer significantly.
What legal and political risks did Scott warn Trump about?
Scott Bessent specifically analyzes the negative legal and political impacts related to firing Powell. He notes that a legal lawsuit could slow the appointment of a successor and raise market concerns.
Furthermore, the Republican faction in the Senate, including Senator John Thune, has voiced opposition to a premature replacement of the Fed Chair as they wish to maintain the Fed's independence in the eyes of the market.
"I think the market desires an independent central bank."
John Thune, Republican Senator, 2023 (Fox News)
Replacing Powell would leave the Chair position to Vice Chair Philip Jefferson, a close ally of Powell appointed by President Biden, which is politically disadvantageous for Trump in the current political context.
What are the other factors that make Trump and his allies want to fire Powell?
Besides monetary policy reasons, some Trump officials like Budget Director Russell Vought are pushing this based on the $2.5 billion Fed office renovation project, showing signs of delays and cost overruns.
To have a legal reason 'for cause' to dismiss, the Trump camp has sent allies to the D.C. planning committee to review and pressure this project.
Such decisions could lead to litigation and are a difficult path, according to recent Supreme Court rulings that complicate the firing of the Fed Chair.
What happens if Powell is fired at this moment?
If Powell is fired, the process of confirming a new Chair will take longer as the Senate is difficult to convene and vote in the summer when the majority of senators are absent. Particularly, the Fed Chair position may be temporarily held by Vice Chair Philip Jefferson, politically disadvantaging Trump.
This increases the risk to the stability of the financial market, as well as the potential for internal disagreements at the central bank at a sensitive time for the economy and politics.
What are the key factors and timing in the controversy between Trump and Powell?
Trump has repeatedly expressed dissatisfaction that Powell has not cut interest rates enough to reduce federal debt costs. This situation has become more strained as the Trump administration questions the delayed $2.5 billion Fed office renovation project.
Ultimately, Scott Bessent seized the opportunity to intervene timely, advising Trump to keep Powell, to avoid widespread negative impacts, especially before the last 10 months of Powell's term.
What other actions have Trump officials taken to undermine Powell?
In addition to Scott Bessent acting as an intermediary, figures like Russell Vought continue to seek ways to remove Powell, primarily based on the prolonged budget renovation case.
This group is also attempting to pass strict inspection measures and on-site checks to create evidence for the 'for cause' dismissal. However, according to legal experts, this is not easy due to recent legal precedents.
What are the lessons and significance of maintaining Fed stability?
The incident highlights the importance of maintaining the independence and stability of the central bank in politically polarized times. Scott Bessent, as Secretary of the Treasury, has demonstrated deep and keen experience in protecting the fundamental economic structure of the United States against emotional fluctuations.
Frequently Asked Questions
What did Scott Bessent help in keeping Powell?
Scott convinced Trump through political-economic analysis, emphasizing legal risks, market reactions, and opposition from Republican senators if Powell were to be fired.
What consequences would firing Powell have for the market?
Creating instability, losing trust in the Fed, could lead to significant financial volatility, along with prolonged litigation causing market concerns.
Why is the Fed office renovation project related to this issue?
The delayed project and budget overruns have been used as grounds by some officials to push for Powell's dismissal in a 'for cause' manner.
Who will replace Powell if he is fired?
Vice Chair Philip Jefferson, a Powell ally appointed by President Biden, will temporarily head the Fed.
What is the Republican reaction to the dismissal of the Fed Chair?
Many senators, such as John Thune, affirm that the market needs an independent Fed and oppose the premature replacement of the Fed Chair.
Source: https://tintucbitcoin.com/former-finance-minister-powell/
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