The Fed system, established in 1913, was designed to be completely cut off from political influences, ensuring stability and objectivity in the management of US monetary policy. However, according to AFP, President Donald Trump is testing that limitation.
If I want him to leave, he will leave immediately. I trust you, I go" - President Trump said on April 17, referring to Mr. Powell, who is in his second term until May 2026.
While Chairman Powell affirmed that he has no plans to resign early and stressed the Fed's independence as "an issue under the law", analysts warned that the increasingly fierce conflict between the White House and the Fed could shook the US financial market, even globally.
"It is clear that the Fed Chairman feels the need to speak up, which shows that the concern is completely serious," said Economist Diane Swonk from KPMG. Ms. Stephanie Roth, chief economist at Wolfe Research, affirmed that the FED will not easily submit to political pressure. cutting rates for just one tweet would be a formula for a disaster, she said.
President Trump wants to cut interest rates immediately to stimulate economic growth in the context of he stepping up tax measures on imports. However, most economists believe that these tariff fences will increase prices and hold back growth, at least in the short term, meaning the Fed does not have many reasons to loosen currency at this time.
In fact, the FED is keeping inflation below the 2% target and shows no signs of adjusting interest rates in the near future, despite pressure from the White House.
A key point is that legally, the US President does not have the right to fire the Fed Chairman unless there is a reasonable cause. The Fed is an independent agency and the politicization of the agency will have a serious impact on investor confidence, while pushing the USD and interest rates into a risky position.
Moody's Analytics expert Mark Zandi said that history has shown that interfering in central bank independence is an "extremely bad idea".
Even if Mr. Trump succeeds in getting the right to fire the Fed Chairman, there is still a barrier that every president must be wary of, which is the bond market.
Amid the unrest from Mr Trump's tariff policies, US government bond yields have surged, the USD has weakened. The Trump administration has postponed a number of tax increases, showing the market's impact.
No one can control the bond market. That is an important lesson. And that is why an independent Fed is a viable thing, Swonk concluded.
According to The Wall Street Journal, President Trump is considering appointing Mr. Kevin Warsh - a former member of the Fed Board of Governors and former financial advisor to President George W.Bush - to replace Mr. Jerome Powell.
Mr. Warsh, 55 years old, helped coordinate bank relief solutions during the 2008 financial crisis and was a person with a very strict view on the US budget deficit. He called inflation a result of irresponsible government spending and over- printing.
However, despite being a candidate for the US Treasury Secretary, Mr. Warsh is said to not support the early sacking of Mr. Powell. According to a source from The Wall Street Journal, he advised President Trump to let Mr. Powell complete his term.
