Can Trump shake Powell's iron rice bowl?
This is not simple; Powell has worked under three presidents: Obama, Trump, and Biden. From the subprime crisis to the inflation battle after the COVID-19 pandemic, he has always been a representative of the hawks, which has displeased the low-interest-rate-loving Trump.
Trump has repeatedly threatened to fire Powell, but Powell is not easily intimidated and has responded directly: No way! There has been much debate about whether a president can fire the chairman of the Federal Reserve.
Trump has always been unhappy with Powell's interest rate hikes and has repeatedly claimed that he would let him go once he is elected president. Now that Trump is coming back, the rift between him and Powell is likely to deepen.
The Federal Reserve is an independent institution, not a subordinate of the government. Its power is granted by Congress and is also subject to congressional oversight. It's not so easy for Trump to move Powell. Currently, only two members of the Federal Reserve Board have terms nearing expiration, and those appointed by the president must be confirmed by the Senate.
More importantly, in the committee that sets interest rates, the Federal Reserve chairman and the other six members only occupy 7 out of 12 seats, with the remaining 5 seats held by the presidents of the regional Federal Reserve banks in rotation. These individuals are all technocrats who do not want to lose the independence of the Federal Reserve.
Therefore, Trump's desire to fire Powell may just be a pipe dream. If a lawsuit were actually filed, it could drag on until Powell's term ends. Moreover, Trump's policies could lead to higher inflation, which is not good for the market.
Last week, the Federal Reserve cut interest rates again, and Powell stated that rates would continue to decrease, but he did not specify how quickly. So, we will have to continue watching this battle between Trump and Powell.
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