Trump openly stated in public that he already has a candidate in mind for the next Federal Reserve Chair, while Powell insists he will serve until the end of his term.
Last week, U.S. President Trump publicly declared at his Mar-a-Lago estate in Florida that Federal Reserve Chair Powell "should resign" and expressed that he "would love to fire him." When asked if he already had a candidate, Trump replied, "I do, and I still do — that hasn't changed, and I will announce it at the appropriate time."
Just a day prior, the Federal Reserve announced a 25 basis point reduction in the federal funds rate target range to between 4.00% and 4.25%. This cut is far below the 3 percentage points that Trump had hoped for.
1. Event Context
● The public conflict between Trump and current Federal Reserve Chair Powell began in 2018. At that time, Powell's Federal Reserve insisted on a rate hike cycle, which was contrary to Trump's policy orientation of stimulating economic growth through low interest rates.
● Since the beginning of this year, Trump has repeatedly criticized Powell on social media and in public. In early July, he directly tweeted that "Mr. Powell should resign immediately!"
● In mid-July, U.S. Treasury Secretary Mnuchin revealed that the selection process for the next Federal Reserve Chair "has officially begun." Reports indicated that Trump even drafted a letter to fire Powell, although Trump later denied this claim.
2. Legal Struggles
● Under U.S. law, the Federal Reserve Chair has term protection, and the president does not have the authority to dismiss them directly. Powell is clearly aware of this, stating, "Trump, as president, does not have the legal authority to remove me from office; I will serve until the end of my term."
● The Trump administration attempted to pressure Powell through other legal means. They requested Congress to investigate Powell on the grounds of "political bias" and "making false statements to Congress." The specific allegations focused on the renovation project of the Federal Reserve headquarters. Trump claimed the project cost $2.5 billion, exceeding the budget by about 32%, and described it as "lavish decoration."
● The independence of the Federal Reserve is facing unprecedented legal challenges. In August of this year, Trump removed Federal Reserve Governor Lisa Cook from her position on the grounds of alleged mortgage fraud. Cook subsequently filed a lawsuit and temporarily won the right to remain in her position. On September 18, the U.S. Department of Justice submitted the case to the Supreme Court, sparking a heated debate about the independence of the Federal Reserve.
3. Candidate Analysis
As the end of Powell's term in May 2026 approaches, the Trump administration has begun actively searching for alternative candidates. The most discussed candidates include National Economic Council Director Kevin Hassett, former Federal Reserve Governor Kevin Warsh, and current Treasury Secretary Scott Mnuchin.
● Hassett is seen as an early frontrunner. As Trump's core economic advisor, he provided key economic justification for the large tax and spending bill Trump signed this month.
● Mnuchin, as the current Treasury Secretary, has a market-oriented style, advocating for flexible rates and fiscal coordination, and was "appointed" by Trump. However, Trump has indicated a preference for him to continue as Treasury Secretary.
● Warsh is viewed as a "hawkish representative," emphasizing inflation control and financial stability, leaning towards early rate hikes and prioritizing risk prevention. Trump has stated, "I should have nominated Warsh instead of Powell."
4. Market Reaction
Trump's intervention in the Federal Reserve has raised widespread concerns in the market. Many on Wall Street privately worry that political pressure could undermine the credibility of the Federal Reserve.
● JPMorgan CEO Dimon publicly stated, "Using the Federal Reserve for political purposes could have negative consequences, completely opposite to what you hope for. It is important for them to maintain their independence."
● Investors believe that this independence is crucial for ensuring the Federal Reserve can achieve its long-term low and stable inflation target. Market participants are concerned that a weakening of the Federal Reserve's independence could lead to severe fluctuations in financial assets.
● One of the biggest risks is that investors may sell U.S. Treasury bonds, thereby raising the interest rates of long-term bonds relative to short-term bonds in the U.S. bond market. A report from Deutsche Bank pointed out that if Trump ultimately dismisses Powell, it could trigger a sell-off of the dollar and U.S. Treasuries.
5. Historical Comparison
Disagreements between presidents and Federal Reserve Chairs over policy are not new.
● Historically, President Lyndon Johnson clashed with then-Federal Reserve Chair Martin over the Fed's rate hike policy.
● President Nixon also secretly pressured then-Federal Reserve Chair Arthur Burns through political means during his re-election campaign, hoping to maintain an accommodative monetary policy to stimulate the economy.
● President Carter and then-Federal Reserve Chair Volcker also had differing opinions on how to address stagflation. At that time, Volcker implemented extremely aggressive rate hikes, causing significant pain to the economy.
However, no president in history has truly dismissed a Federal Reserve Chair. The conflict between Trump and Powell is different from the past in that Trump not only publicly criticized Powell but reportedly also drafted a dismissal letter, a direct challenge to the independence of the Federal Reserve that has not occurred in U.S. history.
6. Internal Dynamics of the Federal Reserve
● In the face of external pressure, subtle changes have also occurred within the Federal Reserve. On September 17, the voting result of the Federal Open Market Committee was 11 to 1, with the only dissenting vote coming from newly appointed Federal Reserve Governor Stephen Milan.
● Milan advocated for a 50 basis point rate cut and was nominated by Trump and confirmed by the Senate to join the Federal Reserve. Notably, he was previously Trump's chief economic advisor and retained his position in the Trump administration after joining the Federal Reserve.
● In the Federal Reserve's latest "dot plot," one official supported a significant rate cut of 125 basis points in 2025. According to reports from the U.S. Consumer News and Business Channel, this official may be Milan.
This situation has raised concerns about the Federal Reserve losing its independence under pressure. At a press conference in September, when asked how the Federal Reserve would maintain its independence after Milan's joining, Powell briefly responded, "We are firmly committed to maintaining our independence."
7. Internal Disagreements on Rate Cut Decisions
● According to the "dot plot" released by the Federal Reserve, among the 19 Federal Reserve officials, 9 expect two more rate cuts this year, 2 expect one more cut, and 6 believe there will be no further cuts. Powell stated at the press conference, "In the short term, the risks of inflation are skewed to the upside, while the risks to employment are skewed to the downside — this is a tricky situation."
● An economist from Oxford Economics stated, "The accompanying 'dot plot' shows that there are serious disagreements within the committee about whether further rate cuts are needed this year." This internal disagreement reflects the complex economic environment facing the Federal Reserve, with employment facing downside risks while inflation remains at relatively high levels.
The financial community is holding its breath, waiting for the Supreme Court's ruling on the case regarding the dismissal of the Federal Reserve Governor. Trump has indicated that he is considering suing Powell for "serious misconduct" regarding the Federal Reserve renovation project, with Powell's term as chair set to end in May 2026.
But regardless of the outcome, this legal and institutional struggle surrounding the independence of the Federal Reserve has left a significant mark in the history of American politics.
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