The Clash Between Trump and the Fed
Can He Oust Powell, and What Happens if Rates Bend to His Will?
The ongoing tension between President Donald Trump and Federal Reserve Chairman Jerome Powell has reached a fever pitch, as outlined in a recent Breitbart Business Digest article titled, “Can Trump Actually Remove Jerome Powell as Fed Chair?”. The piece dives into Trump’s public frustration with Powell, particularly over the Fed’s reluctance to slash interest rates in response to Trump’s economic agenda, which heavily features aggressive tariffs. Trump’s social media outbursts, including calls for Powell’s “termination” and assertions that he could remove him “real fast,” have reignited debates about the Fed’s independence and the legal limits of presidential power. But beyond the question of whether Trump can fire Powell lies a more pressing economic concern: what happens if the Fed succumbs to political pressure and loosens monetary policy to align with Trump’s demands? The answer, in short, is that inflation could spiral out of control, threatening the very economic stability Trump seeks to bolster.
Trump’s Beef with Powell: A Battle Over Rates and Control
The Breitbart article highlights Trump’s vocal discontent with Powell, spurred by the Fed chair’s speech at the Economic Club of Chicago on April 16, 2025, where Powell expressed skepticism about Trump’s “Liberation Day” tariff strategy. Powell noted that tariffs could create a “challenging scenario” by driving up inflation while potentially slowing economic growth, putting the Fed’s dual mandate—stable prices and maximum employment—in tension. Trump, who has long advocated for lower interest rates to juice economic growth, responded with characteristic bombast, calling Powell “always too late and wrong” and suggesting his policies are holding back an economy that Trump claims is “getting RICH ON TARIFFS”.
Trump’s rhetoric isn’t new. Since his first term, he’s pressured the Fed to cut rates, even labeling Powell “the enemy” in 2019. But the stakes are higher now. With Powell’s term as Fed chair extending until May 2026, Trump faces a ticking clock to either bend the Fed to his will or find a way to replace its leadership. The Breitbart piece raises the critical question: does Trump have the legal authority to remove Powell? The answer is murky. The Federal Reserve’s independence is enshrined in law, and Powell has stated he would not resign even if asked, leveraging his personal wealth to fund a potential legal challenge. While some of Trump’s allies argue that the president’s executive authority could extend to removing a Fed chair who has lost his confidence, such a move would likely spark a protracted legal battle, possibly reaching the Supreme Court. The Court’s recent rulings on presidential power over independent agencies, like the National Labor Relations Board, suggest Trump might have some leverage, but the Fed’s unique status makes this far from certain.
The Economic Stakes: Tariffs, Rates, and Inflation’s Ticking Time Bomb
The deeper issue, however, isn’t just whether Trump can fire Powell but what happens if he succeeds in pressuring the Fed to lower rates. Trump’s economic vision hinges on tariffs—such as the 34% levy on China, 20% on the EU, and others announced as part of his “Liberation Day” strategy—to boost domestic production and fund government revenue. He argues that these tariffs, combined with lower interest rates, would supercharge growth without stoking inflation, citing falling oil and grocery prices as evidence. But Powell and many economists warn that tariffs are “highly likely” to raise prices, at least temporarily, by increasing the cost of imported goods and disrupting supply chains. If the Fed were to cut rates in this environment, it could pour fuel on an already smoldering inflationary fire.
Here’s why loosening monetary policy to appease Trump could be catastrophic:
Tariffs as an Inflationary Shock: Tariffs act like a tax on imports, raising the cost of goods ranging from electronics to clothing. Studies from Trump’s first term, like one by economists Alberto Cavallo and Gita Gopinath, found that 2018-2019 tariffs on Chinese goods led to nearly full pass-through to domestic prices, contradicting claims that foreign exporters absorb most of the cost. Powell has echoed this, noting that tariffs could drive inflation higher by increasing input costs for businesses and consumer prices. If the Fed cuts rates, making borrowing cheaper and stimulating demand, this could amplify price pressures, especially in an economy already grappling with tariff-induced supply constraints.
Demand Overheating: Lower interest rates encourage spending and investment, which can boost growth but also overheat the economy if demand outstrips supply. The Breitbart article notes that March 2025 jobs data showed 228,000 new jobs, far exceeding expectations, with steady wage growth and rising labor force participation. This suggests the economy is already running hot. Cutting rates now could push demand into overdrive, driving up wages and prices further, especially if tariff-related supply chain disruptions limit the availability of goods.
Dollar Dynamics and Global Spillovers: Trump’s tariffs strengthen the dollar by reducing demand for foreign currencies, as fewer imports mean less need to buy foreign goods. A stronger dollar could lower import prices in some cases, but it also makes U.S. exports more expensive, potentially slowing growth in export-driven sectors. If the Fed cuts rates to offset this, it could weaken the dollar, reversing these dynamics and importing inflation via higher-priced foreign goods. Additionally, a stronger dollar increases borrowing costs for emerging markets, tightening global liquidity and potentially triggering financial instability that could boomerang back to the U.S..
Inflation Expectations Unmoored: Perhaps the most dangerous risk is that aggressive rate cuts could unanchor inflation expectations. If consumers and businesses believe inflation will rise unchecked, they may hoard goods or demand higher wages, creating a self-fulfilling cycle. Powell has emphasized the Fed’s commitment to its 2% inflation target, but political pressure to cut rates could erode public trust in the Fed’s independence, making it harder to anchor expectations. The Breitbart piece suggests Trump might be laying the groundwork to blame Powell for economic struggles, which could further undermine confidence in the Fed’s ability to manage inflation.
The Fed’s Dilemma: Independence vs. Political Pressure
Powell’s refusal to bend to Trump’s demands reflects the Fed’s historical commitment to independence, a principle designed to insulate monetary policy from short-term political whims. As Reuters notes, Powell has broad bipartisan support for maintaining this independence, and even Trump’s Treasury Secretary, Scott Bessent, has cautioned against firing him, citing risks to financial markets. But the Fed isn’t immune to pressure. The Breitbart article points out that Trump might not need to fire Powell to influence policy; he could “bend Powell to his will” through public criticism or by appointing more dovish Fed governors as vacancies arise. Powell’s term as chair ends in May 2026, but his governorship extends to 2028, giving Trump leverage to reshape the Fed’s leadership over time.
If the Fed were to loosen rates prematurely, the consequences could mirror past episodes of runaway inflation. The 1970s, when political pressure led to overly accommodative monetary policy, saw inflation soar into double digits, eroding purchasing power and triggering economic stagnation. Today, with inflation already above the Fed’s 2% target (October 2024 data showed 2.6% annualized CPI, with three-month rates at 2.5%), and tariffs poised to add upward pressure, a misstep could reignite “Bidenflation”-style price spirals, which crippled the previous administration’s approval ratings. Trump’s own agenda—tariffs, tax cuts, and deregulation—relies on price stability to succeed, as inflation could erode the benefits of his policies and alienate voters ahead of the 2026 midterms.
Critical Perspective: The Establishment Narrative and Beyond
The establishment narrative, as reflected in outlets like The New York Times and CNN, frames Trump’s attacks on Powell as a dangerous assault on institutional norms, warning that undermining Fed independence could crash markets and destabilize the global economy. There’s truth here: central bank independence has been a cornerstone of stable monetary policy since the 1980s, and overt political interference could rattle investors. But this narrative often glosses over the Fed’s own missteps, like its tardy response to 2021-2022 inflation, which Powell himself admitted was a mistake. Critics on the right, including Breitbart’s economics editor John Carney, argue that the Fed’s “restrictive” stance may already be too tight, and Trump’s push for lower rates aligns with economic realities like falling commodity prices.
Skeptically, we should question both sides. Trump’s tariffs may indeed boost domestic industry, but the claim that they’ll have no inflationary impact ignores evidence from his first term. Conversely, the Fed’s data-driven approach, while principled, can lag behind economic shifts, as seen in its slow pivot to rate hikes in 2022. The real risk is that neither Trump’s bluster nor Powell’s caution fully grapples with the complex interplay of tariffs, rates, and global trade dynamics. If the Fed bends to Trump’s will, inflation could surge; if it remains rigidly hawkish, it might choke off growth unnecessarily.
