Uncertain Future for Fed Chair Powell Amid Trump Conflict

The feud between U.S. President Donald Trump and Federal Reserve Chairman Jerome Powell is in a strange phase, raising questions about whether he should stay or go. While Trump hasn't followed through on his reported plans to fire Powell months ago or announce a new Fed Chair, there seem to be mixed messages coming from members of the Trump administration about whether the central bank leader should be removed, investigated, or left alone.

Speaking on Tuesday, Trump adopted a more moderate tone when it came to Powell, though doubling down on his criticism of the Fed chair, suggesting he would let Powell finish the remainder of his term, which ends next May.

“I think he’s doing a terrible job, but anyway, he’ll be gone soon. Eight months, and he’ll be out of here,” Trump said at a White House meeting. He continued: “But you know what? People can’t buy houses because this guy is a dummy. He kept interest rates up too high, and probably for political reasons.”

U.S. Treasury Secretary Steven Mnuchin also softened some of his harshest criticisms of the Fed chair this week. In an interview with Fox Business on Tuesday, Mnuchin said Powell does not need to resign, but added that his earlier call for a “thorough review” of the Fed still stands.

“There’s nothing to indicate that he should go now. He’s been an excellent public servant,” Mnuchin said. “His term ends next May. If he wants to stay till the end, I think he should. If he wants to leave early, I think he should too.”

That stands in contrast to just a week ago, when reports suggested Trump was preparing to fire Powell. The Wall Street Journal reported that Mnuchin ultimately talked him out of it, though Mnuchin has denied that report.

Market Volatility and Potential Impacts

It is difficult to tell at the moment what the administration intends to do. According to a Supreme Court ruling this year regarding the president’s power to fire heads of independent agencies, firing the Fed chair would be illegal. Trump’s team believes they have found a “for cause” loophole to remove Powell, targeting the renovation of the Fed building, a project Trump and his allies claim Powell has mismanaged.

“President Trump can both fault the Federal Reserve for failing to achieve the goals that they set out for themselves and ensure that taxpayer dollars are not wasted on things that don’t benefit the American people,” a White House spokesperson said.

However, even as Trump and Mnuchin softened their tones, other Powell critics continued to apply pressure. Federal Housing Finance Agency Director Bill Pulte, who has criticized Powell in the past, called on the Fed chair to resign in an interview with Fox Business last week.

“We have this person, Powell, who sits there like a nasty, arrogant, conceited person,” Pulte said, adding that high borrowing costs are hurting Americans. “It’s time for Powell to resign.”

Pulte’s recent comments were then rebuked on Monday by Senator Elizabeth Warren. “Your job is to run the Federal Housing Finance Agency, oversee our nation’s mortgage market, and lower costs for American families—nothing more and nothing less. Your frequent activity on X, and apparent decision to take time out of your duties as FHFA Director to draft a letter for President Trump firing Chair Powell, is not normal,” Warren said in a statement, which also added that Pulte has posted or reposted over 100 posts about Powell since early July.

Rounding out this latest episode of Fed drama, Republican Sen. Mike Lee reportedly posted on his X account on Tuesday a fake resignation letter seemingly written by Powell. The post has since been deleted.

Trump’s feud with Powell has been ongoing for years, with the president criticizing the Fed for its unwillingness to lower interest rates and repeatedly calling on Powell to cut borrowing costs.

Market professionals generally agree that removing a Fed chair is not a good idea. Cutting interest rates too soon could exacerbate inflation and reduce the central bank’s credibility, both of which would be damaging to financial markets.

In a note to clients, Ed Yardeni, president of Yardeni Research, said the dollar index weakened and gold prices saw a slight uptick following Mnuchin’s recent comments about Powell.

Senator Elizabeth Warren has also warned that markets could “crash” if Trump ultimately fires Powell prematurely.

“The best thing Powell can do right now is stay put,” Michael Brown, senior research strategist at Pepperstone, wrote in a note on Wednesday. “Resigning is an extremely unlikely outcome, not just as it would represent a capitulation from Powell to the shameless, bully-boy tactics that have become a hallmark of the recent Oval Office, but also as it would consign the whole idea of monetary policy independence to the wind.”

However, some top economists believe that if Powell stepped down, he would actually be protecting the Fed’s independence. Mohamed El-Erian and Jeremy Siegel have both said this week that Powell’s resignation could be a good outcome to his feud with Trump.