President Trump announced he has no intention of removing Federal Reserve Chair Jerome Powell, despite ongoing tensions between the White House and the central bank. This statement comes amidst concerns over the administration’s willingness to challenge the Fed’s political independence. In his first term, Trump considered ousting Powell due to dissatisfaction with the Fed’s pace in cutting interest rates.
Although he refrained from doing so, Trump persistently criticized Powell for maintaining high borrowing costs. The Fed eventually reduced rates to mitigate economic disruptions posed by Trump’s trade war with China, a move that preempted a potential downturn without sparking inflation. As Trump enters his next term, he has resumed critiques of Powell and the Fed, pressing them to lower borrowing costs.
However, the economic landscape has changed considerably since 2019. Current concerns of inflation, exacerbated by Trump’s broad-based tariffs, have made the Fed more reluctant to reduce rates. This sets the stage for a potentially intense conflict between the White House and the central bank.
Trump maintains support for Powell
David Wilcox, a senior fellow at the Peterson Institute for International Economics and former leader of the Fed’s research division, commented on the gravity of the situation: “This is an existentially threatening moment for the institution. We may be on the cusp of throwing away an asset that has taken decades to accumulate.”
Despite Trump’s assurance that he won’t fire Powell, the future of the Fed’s political independence remains uncertain, with significant implications for the U.S. economy.
Stock futures surged following Trump’s remarks, signaling a softening stance on both Powell and tariffs on Chinese imports. The Dow Jones Industrial Average futures rallied 600 points, or approximately 1.6%. The S&P 500 and Nasdaq 100 futures also saw significant gains, rising 2% and 2.4%, respectively.
Trump’s comments provided a boost to investor sentiment, especially around trade-sensitive stocks. In addition to gains in equity markets, there has been a noticeable movement towards traditional safe-haven assets. Gold prices have risen more than 8% in April, reaching an all-time high of $3,509.90 on Tuesday.
Jamie Cox of Harris Financial Group said, “There is a ton of money hiding out in gold at the moment, so there’s plenty of unproductive money that will find its way back into the market at some point.”
As tension mounts between the White House and the Federal Reserve, the future of the central bank’s political independence and its impact on the U.S. economy remain in focus.
