Trump's feud with Fed chair: Bessent warns of market fallout
The American Treasury Secretary, Scott Bessent, has warned the White House that any attempt to dismiss Jerome Powell, the head of the Federal Reserve, could risk destabilising financial markets, according to a report by Politico on Thursday.
What do you need to know?
- U.S. Treasury Secretary Scott Bessent has cautioned the White House against trying to remove Jerome Powell, the head of the Federal Reserve. Bessent believes such an action could destabilise financial markets, which are already fraught with uncertainty.
- President Donald Trump has publicly criticised Powell on the Truth Social platform. Trump declared that Powell's term should end as soon as possible, accusing him of making poor decisions regarding interest rates.
- Despite the criticism, Powell's position is not immediately threatened. Politico highlights that any attempt to remove Powell could potentially end up in court.
Will Powell's dismissal destabilise the markets?
According to the portal, which cites anonymous sources, the Treasury Secretary has warned White House representatives that any attempts to remove Powell from his position would destabilise markets already unnerved by tariffs announced by Donald Trump.
On Thursday, U.S. President Donald Trump attacked Powell on his social media platform, Truth Social. In his post, he claimed that Powell "issued a report which was another, and typical, complete 'mess!'" Trump wrote that Powell is "always TOO LATE AND WRONG." The president argued that the Fed head "should have lowered interest rates a long time ago," similar to the European Central Bank, and "he should certainly lower them now. Powell’s termination cannot come fast enough," the president added.
On Thursday, the ECB lowered interest rates for the seventh consecutive time to support economic growth amid the threat posed by the trade war initiated by Trump.
Is Powell to be a scapegoat?
As emphasised by Politico, by publishing such a post, Trump may have been trying to portray Powell as a potential scapegoat for problems in the U.S. economy. The president might also be seeking to increase pressure on the central bank head to capitulate and lower interest rates.
In Politico's assessment, Powell's position is not currently in jeopardy. The publication notes that any efforts to remove Powell from his role would likely end up in court. His term is set to last another year, leading to the possibility that Trump might decide to simply "get rid of the Fed chair."
What are the consequences for the U.S. economy?
This was not Trump's first attack on Powell, whom the president himself appointed during his first term. In January this year, when Powell did not lower interest rates, Trump stated that the Federal Reserve and its head failed to handle inflation and did a "terrible job" in regulating banks. He also declared that he would tackle inflation himself.
According to Reuters, the central bank's interest rates in the U.S. have remained unchanged since December last year. Additionally, Trump criticised Powell following his statement on Wednesday, in which the Fed head remarked that "independence is very widely understood and supported in Washington and in Congress where it really matters."
