Controversy over Federal Reserve Chair Powell's dismissal, will it lead to changes in interest rate policy?

President Trump has recently continued to publicly criticize Federal Reserve Chair Jerome Powell, fueling speculation about the possibility of his actual dismissal. The financial sector is paying close attention to how this movement might impact markets and monetary policy, with experts noting that removing Powell does not necessarily guarantee the policy changes Trump desires.

Federal Reserve Chair’s Authority and Political Pressure

The Fed Chair also serves as the Chair of the Federal Open Market Committee (FOMC), which sets interest rate policies, making the position the most influential in U.S. monetary policy. Powell holds a dual role as both the Chair of the Board of Governors and the FOMC Chair. President Trump has openly expressed dissatisfaction via social media, calling Powell a “major failure,” and White House economic advisor Kevin Hassett has indicated that the administration is discussing the possibility of dismissing Powell. Trump has reiterated his intention to “certainly” remove Powell, demonstrating strong resolve.

Reasons Why Achieving Rate Cuts Is Difficult

North American chief economist Paul Ashworth of Capital Economics analyzed that simply dismissing Powell would not be enough to achieve the monetary policy changes Trump seeks. He stated, “Even if Powell is removed, there’s no guarantee of rate cuts,” adding, “This is likely just the first step in undermining the Fed’s independence.” Ashworth predicts that forcing the policies Trump desires would require far more extensive intervention than just replacing a single chair.

Market Impacts of Undermining Fed Independence

If Trump attempts to replace not only Powell but also the other six members of the FOMC, it could trigger more severe market turmoil. Ashworth warned that such large-scale personnel changes could lead to a weaker dollar and rising long-term U.S. bond yields. While FOMC members typically follow the lead of the president’s appointee as chair, there is also the possibility they might choose someone else to lead rate decisions, contrary to Trump’s intentions, adding further uncertainty.

Institutional Limitations and Policy Implementation Challenges

Historically, attempts by presidents to dismiss the Fed Chair have been legally and institutionally controversial. Even if such unprecedented actions were carried out, the independence of monetary policy might prevent automatic rate cuts aligned with Trump’s wishes. Experts point out that considering the powers and limits of the Fed Chair, the more likely outcomes are a decline in market confidence and increased financial market instability rather than policy shifts.

In conclusion, while President Trump’s pressure on Fed Chair Powell continues, the likelihood of this leading to actual policy changes remains limited due to institutional independence and complex power structures.