Trump vs. Powell: What Happens If The Fed Gets Turned Upside Down

While tariffs and global trade have probably the biggest theme of Trump’s second term in the White House, his ongoing personal battle with Fed Chair Jerome Powell may not be far behind.

The basis for the conflict is Trump’s belief that the Fed has been too stringent lately in its monetary policy decisions. Trump has publicly called for rate cuts (sometimes steep rate cuts) for many months now, while Powell has maintained his data-dependent stance that he believes still calls for higher rates. Trump is clearly looking for a catalyst to keep the American economic engine revving, but he also may be looking for a way to ease the financial burden of his most recent tax cut bill.

While there are questions around his ability to do so, Trump contended this week that he’s getting ready to fire Powell, although he walked that back later the same day. That created volatility in the markets on Wednesday, but now we’re largely back to the point of simply wondering what comes next.

But what if Trump is successful in removing Powell before his term is up? What happens if the politically independent central bank suddenly becomes heavily influenced by Trump’s whims? What could be the economic impact of a sharp redirect in monetary policy if Trump were to in some way wrestle away control?

Let’s start with the mechanics.