U.S. Treasury Secretary Scott Bessent is said to have explained in detail to President Donald Trump in private conversations that he should not fire Fed Chair Jerome Powell.
According to close sources, Bessent clearly explained to Trump the risks that such a move could pose to the economy, markets, and politics as Powell enters the last 10 months of his term.
The main points that Bessent raised in his warning to Trump included signals that the Fed is preparing to cut interest rates by the end of this year, potential negative market reactions, and the political and legal challenges of impeachment. According to sources, Bessent argued that such a move was unnecessary, noting that the economy was in good shape and the markets were responding positively to Trump’s policies.
Although the possibility of firing Powell has been discussed for months, the issue resurfaced last week. Trump has frequently complained that the Fed needs to lower interest rates, and a senior White House official said in a meeting with Republican lawmakers that the president had indicated he was considering firing Powell. However, Trump told reporters the same day that he had no such plans.
The discussions briefly shook financial markets, as investors were concerned that dismissing central bank governors for political reasons could undermine the Fed's independence and its ability to control inflation.
In April, the Wall Street Journal reported that Bessent, along with Commerce Secretary Howard Lutnick, advised Trump not to fire Powell. In recent developments, Bessent reminded Trump that if Powell was dismissed, he could file a lawsuit, and the lawsuit could be delayed until May, when Powell’s term ends.
Some advisors also pointed out that if Powell were to be dismissed, Fed Vice Chair Philip Jefferson would take on the role of acting chair, although he is also a Biden appointee and close to Powell. They also noted the difficulty in quickly confirming a new presidential nominee due to the Senate being on summer recess.
Another message from Bessent to Trump was: The president will have the power to appoint two important positions at the beginning of 2025, positions that will determine the direction of the Fed. The term of Fed Board Member Adriana Kugler will end in January, and Powell’s will end in May. This gives Trump the opportunity to establish his long-term influence over the Fed starting now.