In a rapidly developing political saga, Treasury Secretary Scott Bessent has reportedly cautioned President Donald Trump against the dismissal of Federal Reserve Chairman Jerome Powell, stressing the potential economic consequences and legal complications that such a move could precipitate.
Despite dissatisfaction with Powell's leadership and decisions, particularly his interest rate policies, Trump was advised by Bessent against removal due to the absence of legal grounds for such an act without just cause, as the Washington Examiner reports.
According to a recent Wall Street Journal report released on Saturday, Bessent engaged in private discussions with Trump, urging him not to proceed with plans to remove Powell. These discussions were held following growing discontent from Trump regarding Powell's handling of interest rates, which the president claims have adversely affected the housing market. Despite his frustrations, Trump later signaled that the probability of firing Powell was low.
Throughout the year, Trump has openly criticized Powell's leadership, broadcasting his disapproval both in public speeches and on Truth Social. He expressed particular dissatisfaction with the Federal Reserve's decision to hold rates steady, which he believed was damaging to various sectors, including housing. Trump described Powell as one of his "worst appointments," attributing the rise in housing costs to what he perceives as excessively high interest rates.
In one of his Truth Social posts, Trump also held the Federal Reserve Board accountable, saying officials there had failed to prevent Powell's decisions. He described Powell's policies as "choking out" prospects for economically vulnerable groups and accused the "Fed Board" of sharing responsibility for the ongoing situation.
Jerome Powell has largely refrained from responding publicly about the potential for his removal. He has invoked the Federal Reserve Act of 1913, which allows a chairman to be dismissed only for "cause," suggesting that Trump's desired removal lacks a legal basis. This provision underscores the unprecedented nature of a president taking such action against a Fed chairman without just cause. History shows no sitting U.S. president has ever dismissed a Federal Reserve Chairman in circumstances like these.
Meanwhile, tensions have escalated within Trump's administration regarding Powell’s performance. Russ Vought, director of the Office of Management and Budget, has also voiced criticism, pointing to Powell's oversight of costly renovations for two Federal Reserve buildings. The upgrades, amounting to approximately $2.5 billion, have put Powell under scrutiny after being reported to be roughly $700 million over budget. Vought’s concerns include a call for potential White House investigations into these expenses.
In response, Powell defended the project and emphasized the necessity of a "fresh review" by the central bank’s independent inspector general, aiming to ensure transparency and accountability.
These events unravel as Trump contemplates a strategic calculus that could have far-reaching implications for the U.S. economy and the future of the Federal Reserve’s leadership. Bessent's intervention suggests a pragmatic approach toward maintaining stability in financial markets amid domestic pressures.
Potential repercussions on the U.S. economy and interest rate policies play a pivotal role in Bessent’s advice to the president. Bessent is believed to have underscored the risk of destabilizing investor confidence and economic growth if Powell were prematurely removed. This sentiment echoes among economists who assert that maintaining continuity is crucial, particularly when the Federal Reserve may be exploring a possible rate cut later in the year. Such a decision is typically made to boost economic activity.
The legal uncertainty surrounding Trump's potential actions introduces an additional layer of complexity. Legal experts argue that removing a figure like Powell could ignite extensive challenges and public debate, further plunging the administration into uncharted waters.
While political dynamics and rhetoric swirl around this issue, the primary focus remains the preservation of economic stability. For now, Trump seems inclined to step back, at least momentarily, from his overture to replace Powell.
As this financial and political narrative unfolds, the White House, Congress, and financial stakeholders will be watching closely. Understanding the implications of Powell's tenure and decisions made in this context will be essential for all parties as they navigate the turbulent landscape ahead.
