Trump's Threats to Fire Powell Spark Market Jitters, Fed Independence Concerns

President Donald Trump has escalated his feud with Federal Reserve Chair Jerome Powell, openly discussing the possibility of firing Powell in meetings with Republican lawmakers and in public remarks. This has caused significant concern among financial leaders and drawn warnings about the dangers of undermining the central bank’s independence.

On Tuesday evening, Trump reportedly waved a draft letter firing Powell during a meeting with House Republicans, seeking their opinions on whether he should proceed. The next day, Trump confirmed this, stating that he had discussed the concept of firing Powell. He insisted that he was “highly unlikely” to do it, but still refused to rule out the possibility. Trump’s motivations include Powell’s refusal to cut interest rates and his management of a $2.5 billion renovation of the Fed’s headquarters, which Trump has criticized.

Pressure from within the administration has also been mounting. Treasury Secretary Scott Bessent, who has been floated as a possible successor to Powell, tried to downplay the speculation, confirming that a “formal process” to replace Powell was under way. However, some of his comments have come close to breaking an “unwritten rule” that Treasury Secretaries avoid criticizing sitting Fed chairs. Other administration officials, including Kevin Hassett, Director of the National Economic Council, Russell Vought, Director of the Office of Management and Budget, and Bill Pulte, head of the Federal Housing Finance Authority, have issued various criticisms centering on the Federal Reserve headquarters renovation.

The prospect of presidential interference in the Fed has alarmed financial leaders. Jamie Dimon, CEO of JPMorgan Chase, delivered a blunt warning to Trump, emphasizing the critical importance of the Fed’s independence. Dimon’s comments came during JPMorgan’s earnings call, where he also criticized Trump’s tariff policies as a significant risk to the U.S. economy. The president’s persistent threats to fire Powell have not gone unnoticed by investors, either. News of the Oval Office meeting and the draft firing letter sent stocks jittery, with the S&P 500 and Dow Jones Industrial Average both falling to session lows before rebounding after Trump publicly downplayed the likelihood of a firing. The dollar also weakened sharply against major currencies, and bond yields rose as traders braced for potential upheaval at the Fed.

Market analysts warn that any move to oust Powell could trigger a crisis of confidence in U.S. monetary policy, potentially leading to a selloff in stocks, a collapse in the dollar, and higher borrowing costs for the government. The episode has also reignited debate over the legal limits of presidential authority to remove a sitting Fed chair, with a recent Supreme Court ruling suggesting Trump’s options may be limited in that regard.

Trump has previously responded to Dimon’s criticism by backing off certain policies. In April, Dimon issued warnings that Trump’s planned “reciprocal” tariffs would render a recession the “likely outcome.” Trump was soon posting on Truth Social to confirm that he had watched the interview and to “BE COOL! Everything is going to work out well.” Still, Trump decided to pause the reciprocal tariffs for 90 days on the same day, April 9.