After years of heated attacks on the Federal Reserve chair, Jerome Powell, the Trump administration has begun suggesting recent costly renovations at the central bank’s Washington DC buildings could justify firing Powell.
Donald Trump’s antipathy for Powell stems mainly from the central bank boss’s refusal to lower interest rates – something the president has repeatedly called for.
Recent comments from the supreme court suggested firing Powell could be unconstitutional, but that hasn’t stopped the White House from getting creative.
Any move by the White House to formally dismiss the Fed chair would be unprecedented. The president has historically respected the independence of the central bank, and kept out of its way – even if there was disagreement over policy.
But, of course, it looks like Trump is following his own playbook. Here’s what we know is going on between Trump and the Federal Reserve.
Here’s what we know is going on between Trump and the Federal Reserve.
Why is Trump attacking the Federal Reserve?
Trump’s on again/off again tariffs have rattled stock markets and business leaders and led to fears they will eventually cause inflation to rise again. Stock markets were quick to respond to – and recover from – the enormous levies. Economists at the Fed have taken a wait-and-see approach to assess the long-term impacts of Trump’s tariffs.
Fed officials have had four meetings this year in January, March, May and June during which they could have changed interest rates. The Fed has two mandates – to promote maximum employment and keep inflation down. The jobs market has held up amid the tariff chaos but the Fed is worried the levies will push up prices. At all four, they declined to touch the rates, citing economic uncertainty.
The pause has made Trump furious.
“‘Too Late,’ and the Fed, are choking out the housing market with their high rate,” Trump wrote on social media, using the “Too Late” nickname he has given to Powell. “I can’t tell you how dumb Too Late is – so bad for our country!”From Trump’s perspective, cutting rates could offset the impact that his tariffs are having on the US stock market. But for Fed officials, it would risk exacerbating inflation.
In a rare public response, Powell directly pointed to Trump’s tariffs as the reason why the Fed has not been able to lower interest rates.
“We went on hold when we saw the size of the tariffs,” Powell said earlier this month. “Essentially all inflation forecasts for the United States went up materially as a consequence of the tariffs.”
Recent inflation data showed that inflation ticked up in June. The annualized inflation rate went from 2.4% in May to 2.7% in June – the highest one-month leap since March 2024.
This doesn’t bode well for the possibility of any interest rate cuts at the Fed’s next board meeting at the end of July.
Can Trump legally fire the Fed chair?
The supreme court recently suggested that the president cannot fire the Fed chair, which would make it impossible for Trump to fire Powell, should he try to do so.
While the court greenlit Trump’s firing of two officials serving on US labor boards, the court went out of its way to say the Fed has special constitutional protections.
“The Federal Reserve is uniquely structured, quasi-private entity that follows in the distinct historical tradition of the First and Second Banks of the United States,” the court wrote in the May decision.
But the Trump administration is trying to find a legal workaround. Trump has recently started accusing Powell of potentially lying to Congress about the $2.5bn renovations taking place at the Fed’s headquarters in Washington.
“I didn’t see him as a guy that needed a palace to live in,” Trump told reporters. “The one thing I would have never guessed is that he would be spending two and a half billion dollars to build a little extension on to the Fed.”
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When asked whether he saw it as a fireable offense, Trump said: “I think it sort of is.”
Powell has asked an inspector general to review the costs of the renovations, which were originally slated to cost $1.9bn but rose to $2.5bn due to “unforeseen conditions”, according to the Fed’s website.
In a letter to the White House’s budget office, Powell said that the Fed has “taken great care to ensure the project is carefully overseen since it was first approved by the board in 2017”.
What does the Federal Reserve do?
As the central bank, the Fed manages the money supply in the US, primarily by setting the interest rate. The interest rate affects how much it costs to borrow money for things like mortgages or other loans.
When setting the interest rate, the Fed considers inflation and the labor market, what it calls its “dual mandate”: higher interest rates could bring down inflation, but negatively affect the labor market, while lower interest rates could do the opposite.
Over the last few years, starting before Trump’s second term, the central bank has been trying to bring down inflation, which peaked at 9% in June 2022.
To do that, the Fed raised interest rates to a multi-decade high of between 5.25% and 5.5%. Just a few years before, at the height of the pandemic, in 2020 and 2021, interest rates had been close to zero.
Late last year, the Fed lowered interest rates, which are now 4.25% to 4.5% – a whole point lower than where they were a year ago.
US stock markets are very sensitive to Fed decisions. Stocks started to climb after September, when the Fed started cutting rates.
What is the Fed’s case for independence from the White House?
The Fed, which holds huge power over the economy, has to be extremely careful about each decision it makes.
Moves made by the central bank can affect the stock market, the value of the US dollar and government bonds – which all, in turn, affect the US economy.
On the Fed’s independence, Powell said that officials “will only make our decisions based on our best thinking, based on our best analysis of the data and what is the way to achieve our dual mandate goals as we can to best serve the American people”.
“We will do what we do strictly without consideration of political or any other extraneous factors,” he said.
