Treasury Secretary Prevents Trump From Firing Powell

In a significant development, Treasury Secretary Scott Bessent played a pivotal role in preventing President Trump from firing Federal Reserve Chair Jerome Powell. Behind the scenes, Bessent engaged in a critical conversation with Trump, emphasizing the potential repercussions of such a move. He argued that removing Powell just ten months before the end of his term would be detrimental, given the stability of the markets and the Fed's signaling of possible rate cuts. Bessent also highlighted the legal and political risks, including potential lawsuits and Republican pushback, which could complicate Trump's agenda during an election cycle.

Trump's frustration with Powell had been mounting for months, primarily due to disagreements over interest rate cuts. The president believed that Powell was not acting swiftly enough to reduce federal debt expenses. This tension nearly reached a boiling point when Trump hinted at the possibility of removing Powell, causing market jitters. Bessent, aware of the potential fallout, intervened to calm the situation. He warned Trump that firing Powell could undermine the Fed's independence and trigger a prolonged legal battle, which would offer no immediate benefits but would instead create more headaches for the administration.

Bessent's intervention was not just about market stability; he also underscored the legal and political complexities. He pointed out that Powell would likely sue if fired, leading to a lengthy legal process that would consume Trump's attention without yielding any tangible gains. Additionally, the Senate would need to confirm a new Fed chair, a process that could be complicated by Republican opposition and the absence of many lawmakers during the summer recess. Furthermore, if Powell were to leave, his successor, Philip Jefferson, a Biden appointee and Powell ally, would take over, potentially aligning the Fed even less with Trump's policies.

While Bessent worked to prevent Powell's removal, other Trump officials, led by Budget Director Russell Vought, continued to explore ways to push Powell out. Vought focused on a $2.5 billion office renovation project overseen by the Fed, which was behind schedule and over budget. Vought aimed to use this as grounds for a "for cause" removal, a legal loophole that could bypass the usual protections for Powell's position. Trump recently appointed three allies, including one reporting to Vought, to a D.C. planning commission that had previously approved the Fed's design plans. This commission is now demanding site visits and threatening audits, potentially setting the stage for Powell's removal.

Despite these efforts, Bessent's intervention appears to have been successful in averting a crisis. His arguments about the legal risks, political pushback, and potential market instability convinced Trump to back down from his plans to fire Powell. This development underscores the delicate balance between political pressures and the need for an independent central bank, highlighting the crucial role that Treasury officials can play in maintaining economic stability.