News

By Howard Schneider

(Reuters) -U.S. President Donald Trump on Thursday launched a series of attacks against Federal Reserve Chair Jerome Powell, accusing the central bank chief of "playing politics" by not cutting interest rates, asserting he had the power to evict Powell from his job "real fast," and looking forward to the day when Powell was gone.

Powell's termination as Fed chair "cannot come fast enough", the president said in morning comments posted to social media. Trump's post also said the Fed should be cutting interest rates and called a recent Powell speech about the economy a "complete mess."

Trump expanded in a later press appearance that reflected how the Fed's decisions could weigh on the president's fortunes.

Interest rates on home mortgages and other consumer credit remain high, for example, and the Fed is likely to offer little relief now that inflation risks are rising in the wake of Trump's tariff plans.

"The Fed really owes it to the American people to get interest rates down. That's the only thing he's good for," Trump said. "I am not happy with him. If I want him out of there he'll be out real fast believe me."

Trump's pointed remarks about Powell echo the sometimes intense language used against the Fed chair in Trump's first term. It pushes into an issue with the potential to rock global markets if the president tries to fire Powell because he disagrees about his monetary policy decisions.

Indeed, Trump has privately discussed firing Powell for months and talked about it with former Fed Governor Kevin Warsh, including the possibility of then selecting Warsh as Powell's replacement, the Wall Street Journal reported, citing unnamed people familiar with the matter. Warsh for his part has advised against trying to fire Powell, arguing that Trump should let the Fed chair complete his term without interference, the report said.

It is not clear Trump has the power to remove Powell, who is appointed by the president but confirmed by the Senate. An effort by Trump to remove members of other independent agencies is currently before the Supreme Court. On Wednesday, Powell said he felt the case would not change the Fed's longstanding independence in monetary policy, something that has broad bipartisan support.

Contrary to Trump's assertion that Powell would leave if asked, Powell, a former private equity investor with enough independent wealth to fund his own legal challenge, has said he has no plans to vacate the job before his term ends in May of next year.

Still, the remarks rekindled an issue that investors had hoped was settled with Powell serving out a four-year term that ends in May 2026 and Trump picking a successor in the meantime. Such a transition would avoid the sort of fight that could undermine Fed credibility that remains important to global markets.

Online betting markets have taken note, with a contract on the platform Kalshi now placing a one-in-four chance that Powell will be out as Fed chair by year end, roughly double the odds from a month ago.

HIGH STAKES

Trump's blow-up at Powell was sensitive enough, Politico said in a report citing unnamed sources, that Treasury Secretary Scott Bessent has been cautioning White House officials against attempting to fire Powell, saying it would risk destabilizing financial markets.

International Monetary Fund Managing Director Kristalina Georgieva said that with the global outlook weakening in the face of the Trump tariff onslaught, central banks like the Fed needed to remain agile and credible - capacities that can be limited by political interference.

"A sudden crystallization of the threat to Fed independence would both intensify market stress and shift it in more of a stagflationary direction with a sharp increase in tail risk," Evercore ISI Vice Chair Krishna Guha said in a note.

Trump's comments come a day after Powell said at an event at the Economic Club of Chicago that the Fed's "independence is very widely understood and supported in Washington and in Congress where it really matters," drawing applause from the high-level group of business executives for a pledge to set interest rates independent of political pressure or partisan considerations.

In the same appearance, Powell downplayed the likelihood of interest rate cuts anytime soon. He said the administration's tariff plans were likely to raise both inflation and unemployment, leaving the Fed sidelined in making any changes to interest rates until the direction of the economy is clearer.

While Trump noted approvingly that the European Central Bank has been cutting rates, the ECB is proceeding partly in response to Trump's own trade policies.

The euro-area's growth outlook had "deteriorated owing to trade tensions," the ECB said, while euro-area inflation is expected to continue falling.

In the U.S. Trump's plans have also led to a lower growth outlook, with economists polled by Reuters putting recession odds at 45%. But it has also raised the prospect of higher inflation that policymakers said they may need to guard against by leaving interest rates at least at their current level.

The Fed's benchmark interest rate is currently 4.25%-4.50%, where it has been since December following several rate cuts late last year.

"I don't see any need to change the setting of the fed funds rate anytime soon...It's really about collecting information, understanding better what's happening in the economy during the rest of this year, understanding kind of how the uncertainty plays out," New York Fed President John Williams told Fox Business Network correspondent Edward Lawrence on Thursday. "I think we have a period of higher inflation this year and a slower growth path for this year relative to last year. So that's a combination you have to think carefully about."

Powell on Wednesday warned Trump's tariff policies risked pushing inflation and employment further from the central bank's goals, which it manages jointly under a mandate from Congress.

The Fed was "well positioned to wait for greater clarity" about Trump's policies and their impact, Powell said.