Treasury Secretary Advises Trump Against Firing Powell Amid Rate Cut Speculation

Treasury Secretary Scott Bessent has privately advised President Donald Trump against dismissing Federal Reserve Chairman Jerome Powell before Powell's term ends in May next year. This advice comes as the Federal Reserve has indicated potential interest rate cuts this year, which could provide much-needed macroeconomic adjustments without the disruption of leadership changes.

Bessent's counsel reflects concerns over potential economic disruption and legal challenges. He emphasized the stability in current U.S. economic conditions and the positive market responses to existing policies. His warnings against Powell’s dismissal were primarily aimed at avoiding political turmoil and maintaining an optimistic market outlook in anticipation of the electoral cycle. Bessent noted that if Powell were removed, legal complications could arise, affecting political dynamics and economic perceptions.

Historically, such actions have led to market fluctuations tied to leadership volatility. For instance, Richard Nixon’s pressure on Fed Chair Arthur Burns in 1971 caused significant market instability. The current economic indicators suggest that maintaining stability in legislative and regulatory environments could bolster investor confidence. Markets tend to favor predictable leadership in financial institutions, recognizing potential innovations in monetary policy adaptations if Powell stays through his term.

Despite Bessent’s warnings, other top Trump officials are intensifying attacks on Powell. Russell Vought, Director of the White House Office of Management and Budget, has accused Powell of 'gross mismanagement,' particularly targeting the Fed’s $2.5 billion renovation project. Vought demanded answers from Powell about the cost overruns and scope of the Fed’s headquarters revamp. Powell, in response, emphasized transparency and accountability in a written reply: “The Board believes it is of the utmost importance to provide transparency for our decisions and to be accountable to the public,” Powell wrote.

Firing a Fed chair before their term ends is unprecedented in U.S. history. Legal experts suggest it could spark a constitutional clash that may ultimately be decided by the Supreme Court. Under the Federal Reserve Act, the chair serves a four-year term, and any attempt to remove Powell prematurely would likely be challenged in court. Bessent also warned Trump about legal risks and potential political backlash from the Republican Party, further complicating the situation.