White House Prepares to Remove Powell Amid Interest Rate Disputes

The White House is actively preparing to remove Jerome Powell from his position as the Chairman of the Federal Reserve. This move comes after President Donald Trump has repeatedly expressed dissatisfaction with Powell's handling of monetary policy, particularly the decision to keep interest rates steady. The White House has been using an overbudget renovation project at the Federal Reserve headquarters as leverage to pressure Powell out of his job. Trump has suggested that the lavish and costly renovations could be grounds for firing Powell, describing the costs as "pretty disgraceful." Powell, however, has refuted media reports about the renovations and has called for an investigation by the bank's inspector general. He has also asserted that a president does not have the legal authority to fire or demote Fed leaders without cause, citing Section 10 of the Federal Reserve Act.

Since December, the Federal Reserve has not lowered interest rates, which ceased following the elections. This cessation has sparked discussions regarding Chair Powell’s alleged political maneuvers. Although Trump has stated he would keep Powell until his term ends, the delay in interest rate cuts has tested his patience. Trump has previously claimed that Powell initiated interest rate cuts to save the Democratic Party during election times. Following his election, Trump frequently criticized Powell’s political stance, demanding interest rate cuts via weekly social media posts. Additionally, Trump highlighted the significant budget spent on renovating the Fed’s complex through his media channels. In response, the Fed justified the costs by pointing out the complexities of restoring a historic building and shifted the focus back to Trump’s tax laws.

Reports from last week suggested Powell’s potential resignation. Earlier, three Fed members hinted at possible rate cuts in July, revealing internal disagreements. These rumors gained traction when the Federal Housing Finance Agency (FHFA) Chairman took them seriously and commented publicly, fueling the controversy further. Recently, White House officials announced the preparation of a draft to remove Powell from his position. On Tuesday, Trump discussed Powell’s removal with members of Congress, although the officials clarified that no definitive timeline exists for a decision regarding the Fed chairmanship. “Trump is likely to remove Powell soon,” stated a White House official, highlighting the ongoing speculation about Powell’s departure.

If Powell is removed and replaced with a chairperson complying with Trump’s directives, how will the Fed reassure the markets? What implications would this have for the independence of the Central Bank? Despite the Supreme Court ruling against him, can Trump navigate through the removal process while handling potential economic instability during this transition? The process to select a successor for Powell, whose term as chair is set to expire in May 2026, is already underway. Trump discussed the possibility of removing Powell with congressional Republicans, who voiced support for the move. However, Trump has not made a final decision and could still change his mind. The potential firing of Powell would likely lead to significant legal and financial repercussions, including a possible sell-off in the bond market and an increase in yields. Analysts have warned that if Trump were to replace Powell with someone who would bully the Fed into cutting rates, the market would react negatively, as it did in late 2024 when 10-year Treasury yields jumped following Fed rate cuts.

The White House's actions have sent mixed signals about Powell's future. While some officials have indicated that Trump is likely to fire Powell, others have suggested that the president might allow Powell's term to run its course. The uncertainty surrounding Powell's future has led to speculation about who might replace him. Treasury Secretary Scott Bessent has confirmed that the process to replace Powell is underway and that the White House aims to announce a nominee by fall. The potential removal of Powell would mark a significant shift in the Fed's leadership and could have far-reaching implications for monetary policy and the economy.