Donald Trump does not like Federal Reserve chairman Jerome Powell and may revoke his reappointment to a second term as soon as this year, breaking with longstanding tradition respecting independence of US central banks.
Trump accused Powell of making politically driven decisions regarding interest rates.
Powell is Political
The US president nominates the head of the Federal Reserve, an appointment which grants them significant influence over monetary policy and has an effect on the economy. Jerome Powell was first nominated by former President Joe Biden and has been reappointed to another four-year term that runs out in 2026.
Powell has repeatedly stressed that the Fed will use economic data as its guide when deciding whether to cut rates or raise them in response to high inflation and weak economic growth. Yet he has signaled his intention of cutting rates to assist Democratic rivals in 2024 elections, breaking with decades of tradition wherein its chair acted independently without regard for political considerations.
Powell has repeatedly stated his intent not to raise rates this year, while analysts predict the Federal Reserve may delay taking further steps until after March, when its decisions could change due to employment data such as January’s showing that 353,000 new jobs were added by the economy.
He’s Trying to Help Democrats
Even though President Trump has attacked the US justice system, Congress, and independent government agencies – they appear to have weathered his attacks thus far – although one casualty may soon emerge: the Federal Reserve Bank.
Trump has accused Federal Reserve Chairman Jerome Powell, whom he appointed, of being too political, alleging that central bank interest rate cuts are being implemented solely to assist Democrats win in 2024.
The Federal Reserve should be immune from political influence, making this kind of attack on it from a president unusual. But this could be seen as a warning sign from President Donald Trump that his administration is shifting gears and targeting the Fed more aggressively ahead of next year’s presidential election, which could prove disastrous for economic and financial markets while signalling his intent to consolidate power further in his hands.
He’s Trying to Make the Economy Better
The stock market is rising, consumer inflation is cooling off, and Wednesday’s jobs report was strong – all signs point to the Federal Reserve reducing interest rates to further boost economic activity.
But Powell isn’t keen on taking that step just yet – at least, not right away. Instead, he wants more positive inflation reports so he can have confidence that prices have indeed reached his 2% goal and cut interest rates as intended.
Trump continues to complain about his choice for Fed chair, suggesting Powell is making political decisions to assist Democrats win midterm elections in November. That claim isn’t quite accurate – the Fed must base its decisions solely on economic data rather than politics – this approach has served America well in the past, and should work similarly this time around.
He’s Trying to Make the Stock Market Better
Donald Trump often promised in 2020 against Joe Biden that the stock market would soar under his presidency; now as he aims to unseat him in 2024, he boasts that stocks are rising due to his success alone.
As President Trump visits early voting states, he continues to suggest that the Federal Reserve will reduce interest rates to stimulate the economy – but this likely won’t help him secure reelection.
The Federal Reserve operates independently from the White House and US presidents don’t directly exert control over its policies. But they do have power to nominate candidates, such as Jay Powell’s nomination by Donald Trump for another four-year term as Fed chairman. Reemploying him could give him influence over economic direction leading up to elections – something markets may take notice of if that occurs.
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