On Tuesday, President Donald Trump eased his threats to dismiss Federal Reserve Chair Jerome Powell following a string of escalating criticisms aimed at Powell for not lowering interest rates.
“I have no plans to fire him,” Trump stated to reporters in the Oval Office. “I would prefer to see him take more initiative regarding lowering interest rates,” he continued. This de-escalation was positively received by Wall Street, leading to a nearly 2 percent rise in equity index futures as trading resumed on Tuesday evening.
On Monday, stocks, bonds, and the US dollar had all experienced a decline after Trump’s repeated criticisms over the Easter holiday weekend regarding Powell’s reluctance to cut rates since he took office in January.
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“Whether this reaction is due to Monday’s severe preview of market consequences if he proceeded with firing Powell, or if it was part of a larger strategy, it represents a distinct positive shift,” commented Evercore ISI Vice Chairman Krishna Guha. “This significantly decreases the chances of adverse outcomes like stagflation and a potential sovereign debt crisis related to tariffs, even though such risks still persist.”
During his interaction with reporters on Tuesday, Trump also expressed hope that a trade agreement with China could “significantly” reduce tariffs, which further encouraged investors.
He noted that such a deal would lead to “substantially” lower tariffs on products from China, implying that the final rates would be much lower than the current ones but added, “it won’t be zero.”
The unsettling implementation of Trump’s tariffs, coupled with his pointed remarks towards Powell and the Federal Reserve, had caused anxiousness among investors, leading to increased selling of various US assets, including stocks and Treasuries.
Trump’s criticisms included harsh statements, like a social media post saying Powell’s removal “cannot come fast enough,” and personal attacks calling Powell “a major loser.” These threats alarmed financial markets that view the Fed’s autonomy as essential for maintaining its credibility as a leading central bank and ensuring global financial stability.
Despite setting aside his threats for now, Trump’s critiques of the Fed’s monetary policy remain sharp.
“It’s an ideal time to lower the rate, and we want our chairman to act promptly, rather than lagging behind,” Trump indicated.
Trump’s frustrations with Powell trace back to his first term in the presidency. He appointed Powell, moving him from being a Fed Board of Governors member to the chair, but soon grew dissatisfied with the rate hikes under Powell’s leadership.
While Trump has considered the idea of firing Powell, advisers ultimately persuaded him against it. It remains uncertain whether he holds the authority to do so. Powell maintains that the Federal Reserve Act of 1913 prevents such actions. Trump, however, has asserted that if he wished Powell out, he would be gone “very quickly.”
The law specifies that the Fed governors, who are appointed by the president and confirmed by the Senate for staggered 14-year terms, can only be removed for “cause”—traditionally interpreted to mean misconduct rather than policy disagreements. Nevertheless, the law does not specifically limit the removal process for the chair, who is also one of the governors.
Trump’s harsh rhetoric coincided with ongoing court cases regarding his dismissal of officials from other independent federal agencies, which are being closely monitored in Fed circles as they may influence perceptions of Trump’s authority over Fed officials who are believed to operate without political influence in monetary policy decisions. The Fed reduced interest rates by a full percentage point late last year to a range of 4.25 percent to 4.50 percent but has maintained the same rates during the two policy meetings since Trump’s return to office. The upcoming setting of rates is scheduled in two weeks.
Fed officials are concerned that the aggressive tariffs implemented by Trump since early February could reignite inflation, which they have struggled to bring back to their 2 percent target. At the same time, they worry that tariffs could hinder growth and raise unemployment while placing upward pressure on inflation.
This situation has led to a cautious approach regarding further rate cuts, although many policymakers still anticipate some reductions may occur later this year.
Following Trump’s comments, interest rate futures traders reduced their expectations for Fed policy easing, now predicting three quarter-point cuts by the end of the year instead of the previously expected four. Currently, “hard data” related to the US economy, such as employment and retail sales, indicates stability; however, surveys reflect rapidly declining confidence among households and businesses. The prevailing view among economists is that risks are significantly skewed toward the downside as the impact of tariffs begins to unfold.
The International Monetary Fund announced on Tuesday a reduced growth forecast for both the US and global economies this year, attributing the downgrade primarily to Trump’s tariff policies.