Swamp Notes: Trump’s case against Fed chair Powell

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So on Thursday, the President of the United States walked into the Federal Reserve Building in Washington, D.C.

So we're going to take a look.

We're going to see what's happening.

And while he was there, he squared off with the chairman of the U.S.

Central Bank, Jay Powell.

So the 2.7 is now 3.1.

I'm not aware of that.

Yeah, it just came out.

Yeah, I don't know.

I haven't heard that from anybody at the Fed.

Maybe it's obvious, but U.S.

President Donald Trump does not like the Fed chair.

He's been saying this for months.

The job he's done is just terrible.

The Federal Reserve doesn't want to cut interest rates nearly as fast as the president does, and that has infuriated Trump.

Now, it looks like he's building a case to fire Powell and upend the central bank in the process.

This is Swamp Notes, the weekly podcast from the Financial Times, where we talk about all of the things happening in U.S.

politics, finance, and the economy.

I'm Mark Filipino, and this week we're asking what will happen if Donald Trump does actually fire Jay Powell.

Here with me to discuss is Claire Jones.

She's the FT's U.S.

economics editor, and she covers the Fed.

Hi, Claire.

Hi, Mark.

Also joining us is Adam Posen.

He's the president of the Peterson Institute for International Economics.

Adam, welcome.

Thanks for having me, Mark.

So, Claire, you were on the show last week to answer our listener question about whether or not the president can fire Jay Powell.

Does he have that power?

Obviously, the story has continued to get bigger since then in just a week.

Can you tell us why Trump took this trip down to the Federal Reserve building?

What was he trying to accomplish?

So I think it's a very good question.

I mean, as we talked about last week, it's very difficult for Trump to fire Jay Powell over monetary policy.

The Supreme Court has made it quite clear that it doesn't think the executive branch has the power to fire either the Fed chair or the other six governors on the Fed board for disputes over interest rates.

So there's the sense in which

people think attention's now turned to a renovation that's been running for years to kind of serve as a pretext to go after Powell on other grounds.

And what are those other grounds?

Can you explain that a little bit?

The renovation?

So the Fed's renovation is costing a lot of money.

It's costing $2.5 billion.

There are good reasons why it's costing so much.

It's a refurbishment of a historical building that's 90 years old or almost 90 years old.

Also, during the last administration, Trump appointed officials, you know, really wanted to preserve the buildings on the National Mall, such as the Fed's headquarters, by using materials such as marble.

So there was a sense in which they had to do a lot of preservation work.

However, the fact that they're spending so much has now attracted a lot of attention.

It's really been over recent weeks where we've seen certain allies of Trump really try to attack the Fed over the cost of this building work.

Now, Adam, does that argument spending too much, not communicating when the Fed should, does that make sense to you here?

Does Trump and his administration actually have an argument?

No, they have a pretext.

Now, they may have some use for them, Mark, in really bare knuckles, nasty political force.

But

in terms of either good policy or

realistic legal argument, no.

They're trying to make up something that will additionally pressure the chair in a very overt way.

And I think the way they seem to think about it is if they keep attacking the chair and the Fed on multiple fronts at once, at some point,

they think Powell and the top staff will break or screw up or do something.

It's not because they actually expect any of this to be valid.

It's just a pretext for pressuring them.

Adam, I'm really interested because I've only been a financial journalist in the time that Powell has been Fed chair.

But I'm curious, since you have a lot more experience in this field than I do, have we seen this kind of hostility between Fed chairs and presidents in the past?

Or is this a really unique situation?

Mark, I actually did my dissertation on central bank independence.

Oh, great.

So I'm talking to the right channel.

So, just as with many things in terms of tactics and behavior that President Trump engages in, you can find slight precedence, but we shouldn't normalize it.

So, there's been three or four previous times that a president has visited the Fed.

One was Franklin Delano Roosevelt to open the 90-year-old building that Claire mentioned.

The others were for swearing-ins, all just ceremonial.

They have attacked the Fed on building issues before.

So, when I first joined the New York Fed as a staff economist in the mid-90s, the Democratic House majority was very angry with the Fed on interest rates, and they went after the Fed because there had been supposedly cost overruns for the Federal Reserve Bank of Dallas building, the Federal Reserve Bank of Minneapolis building.

So, I mean, these kinds of things happen, but never quite so personal, in your face, unremitting, and never so much by the president as opposed to Congress.

And so, with the exception of what Richard Nixon did to Arthur Burns in the early 70s, that's the way it's gone.

And underlying all this is the understanding that it's in your best interest, either as president or more importantly, for the country, to have an independent Fed, because then inflation tends to stay lower, be more stable.

So,

just to jump in there, that I couldn't agree more with Adam on that.

And I think there's a few things to stress there.

I mean, one is a lot of U.S.

presidents have wanted U.S.

interest rates to be lower.

But I think this is unique in the sense that it's so public.

The attacks are so nasty and personal in a way.

And it's also the degree to which we're not just talking about one or two cuts.

I mean, Trump is saying he wants interest rates rates to fall as low as 1%, which is the sort of level we usually see of economies in crisis.

And it's just very, very unusual.

And just one more point.

Sorry to pal on.

No, no.

This constant threat of firing, whether or not it's legal,

is also unprecedented.

So usually it's been because the presumption is according to the laws, the Supreme Court upheld, that

the chair has the right to some insulation to do the job and only can be fired for malfeasance, not for the president's displeasure.

So, just to game this out a little bit, say that Trump and the administration does build enough of a strong enough case to oust Powell saying that he has abused his power through this building renovation.

Adam, you're shaking your head because it's not going to happen.

But if it does happen, like what would the process be?

How would he even go about it?

There is no precedent.

I mean,

so basically,

like I said, they're just throwing an unbelievable amount of abuse and tempestuousness.

So don't focus on the process.

What I think we need to focus on is

how bad it would be, not just if you replaced Chair Powell, but and not just because it's a precedent in some abstract way, but and I know you're getting this, Mark, but it's about what the impact would be in the future.

I'm really glad you brought that up because I think we've seen a taste of this already.

But what would happen to markets?

What would happen to the economy?

What would happen to the global economy if Trump were to go ahead and fire Powell, whether that's legal or not?

What would happen?

I think the focus would have to be on the dollar market and the long-term treasury market.

Those are the two, not necessarily the stock market.

As we've seen throughout history, not just the last year, the stock market can diverge from the future of the economy for all kinds of reasons, for extended periods.

And we have seen the dollar suffer and long-term bonds suffer this year while stocks continue to have history.

And if you have a short time horizon, having lower interest rates might make you happy.

If Trump is good for your business through whatever means, a victory for Trump might make you happy.

So, what we would expect, maybe not overnight, but would be a risk premium, meaning an average higher rate, no matter how much it goes up and down, for U.S.

treasuries on interest rates

because people are worried about an inflation or an uncertainty.

And again, what I want to emphasize is: as much as I respect Jay Powell and don't think he should be fired because it's illegal, it's not about him, and he knows this.

It's about the institution.

And we've seen this recently in Turkey, in India, where a strong man,

semi-democratically elected leader repeatedly turned over the central bank governor.

Right.

Governor is what they call chair in those countries.

Yeah, I mean, President Rezhip Tayyip Erdogan in Turkey famously called interest rates the mother and father of all evil.

Like he does not like high interest rates.

Exactly.

And you end up in all these countries, and we've seen this over post-war history throughout countries.

The more

unstable the central bank governor is,

the higher the average average interest rate and the higher the interest rate on government debt passes through to everything else in the economy.

And

several years ago, when I was working on research on central bank independence, I and others established that turnover in the governor is actually one of the two biggest predictors of higher inflation on it.

Oh, really?

That's interesting.

That's very interesting.

Claria, you see, you wanted to jump in.

Go ahead.

Yeah, I mean, I think this is just just a really, really important point in this instance, because if the Fed does look as though it's responding to Trump and its independence is compromised, then the US government will likely have a higher cost of borrowing.

The Fed sets short term interest rates.

The government borrows, it tends to borrow at longer maturities.

So Trump's idea that it'll somehow help him out on the fiscal side, if the Fed cuts interest rates aggressively to please him a lot of economists and investors we speak to just think that's plain wrong one thing i want to jump back into is something that we've already touched on a little bit but you know aside from the hypothetical that we're not even going to entertain that trump ousts jay powell even if he does claire you said to me offhand when we were just chatting the other day that that wouldn't even matter right that the fed is such a lock-tight institution that

the the presence of one person doing the bidding of the president wouldn't have the kind of effect that maybe the president wanted.

I mean, I'd be interested in Adam's views on this, but I think it really does depend on the degree to which that sort of consensus way of monetary policy making holds.

It depends on who we get as the next Fed chair to, but there's just the sense in which I think there are guardrails within the Fed and within the way the Fed operates.

But we are in unprecedented times too.

No, I think Claire's basically right.

I think I want to put in one specific and one slight pushback.

So the specific is,

you know, it is the Federal Open Market Committee.

There are 13 members, only a certain subset get to vote at any time, but the chair rarely, if ever, loses a vote.

In the end, if a majority of the committee doesn't want to do what the chair wants to do,

doesn't work.

That's not going to happen.

And that's what independent central banks are supposed to do is debate the merits of a a given policy change in a substantive way and so there there's a sense in which i think part of the reason the markets aren't quite as panicked as they might be is because of what claire and i are talking about that there is in a sense a bit of a guardrail but i think this is misleading because what happens in practice in this kind of deliberative committee is

The chair manages to slow down how fast you respond to inflation.

The chair manages to divert some of the discussions.

The chair can, politically compromised chair, can distort the communications as much as Mark, you and Claire try to make sense of them.

And so there is maybe not as big a penalty as there would be, you know, in Erdogan's case or when they physically threaten central bankers in certain countries, right?

God forbid.

So in the end, you would have some check on inflation, but that's a very long way from the kind of credibility the Fed has had, including under under Powell, that inflation came back down after the 2020, 2021 period.

We talk about interest rates and the Federal Reserve in a really high-level way because we are the Financial Times and you're an economist, Adam.

And I think one thing I'd like to do is just talk for the average consumer for a second, because I think that's what Trump does in large part in his argument is that interest rates are...

high interest rates are hurting the American economy.

I'd like to just pick that apart a little bit because we have seen cracks in the economy.

Is there an art?

Does Trump make a case here that interest rates should come down a little bit considering the weaknesses that we are seeing in the U.S.

economy?

In my view, no.

No.

Not because it's Trump.

So, like you're saying, let's look at the merits from the American household point of view.

Sure.

And so, basically,

the Fed

is

for political and economic reasons supposed to focus on the economy in general.

So, unemployment or labor force participation, inflation.

So, for the average household, the Fed needs to communicate, and every time it has to do this, and say, right now, average unemployment is still in the low fourth.

Right now, inflation has been moving sideways.

It's not all the way back down to target, but it's been moving sideways.

We think that's about where the economy should be, knowing knowing that if we push it too hard in one direction or the other, something will blow up.

And

so we're going to wait.

That may not be pithy enough, but that's essentially the message that the Fed repeatedly has had to give.

If we focus on specific things, like even the housing market, then we end up pandering to somebody's special interest or making a mess.

Now, that may not work,

but that's the honest bottom line way in which which I think they should talk about it.

Just to go back slightly to the issue of how this kind of plays out in public and households suffering with higher interest rates.

I mean, Trump's kind of associating low borrowing costs with having a strong economy.

And I wonder if, you know, people will hear that and think, yeah, the president's got a point there.

Whereas, you know, as Adam accurately describes, with the Fed, it's trying to do something else with interest rate policy.

I want to bring bring us back to our core question.

Just to cap it off, because I think it's important just to put a ribbon on this.

Based on our conversation, it sounds like the answer is no, but I would like just to pose to each of you again, is it likely that Trump fires Powell or ousts Powell before Powell's term is up in May of 2026?

I would use the term ousts.

And I would say it's not likely in the sense of greater than 50%, but it's far more likely than it should be.

And so there's going to be a bunch of erosion of the Fed, just like they're eroding the independence and quality of a whole bunch of government institutions, particularly independent agencies.

They may cut the budget,

they may make it unpleasant for senior people to work there.

So the combined probability of all this to me is we're going to end up with more inflation in the short term and weaker currency in the short term.

And you have to take that seriously.

Yeah, I'd agree with Adam on that.

I think it's more likely than not that he'll be in the job come May 2026, but it's likelier than it ought to be that he could be ousted.

I'd just add as well that Powell understands what's at stake here.

He understands how important it is for the institution that he remains in place.

And he's definitely not going to be bullied out of the job and resign.

I completely agree with that evaluation.

Whatever you think of his policies, Jay-Powell is standing up for the institution, standing up for rule of law, standing up for competent government, and he will go down fighting.

It's about the future of the institution, the future of inflation and monetary policy in the U.S.

And it's not about Jay, it's about the institution.

Guys, I want to thank you both for an excellent conversation.

Adam Posen, he's president of the Peterson Institute of International Economics.

Thank you, Adam.

Thank you.

And Claire Jones, my colleague.

She's the FT's U.S.

Economics Editor.

Thank you so much, Claire.

An absolute pleasure, as always, Mark.

All right, we're going to take a quick break.

And when we come back, we are going to do Exit Poll.

We are back with Exit Poll, where we ask an FT journalist one of your questions, our listener questions.

We've got the FT's Deputy Washington Bureau Chief, Lauren Fedor with us today to answer a question, which comes from Derek in Hungary.

Derek asks, how likely is the Democratic Party to win a significant majority in both the House and the Senate in the upcoming midterm elections in November next year?

And with this, you know, if they do win, do they have any possibility of walking back Trump's policies on immigration, climate, and tariffs?

Lauren, what do you think?

Well, there's a lot to unpack there.

I would start with, I guess, the first part of the question, which is how likely is it that the Democrats are going to win a significant majority in both chambers of Congress?

The reality is, is that we're probably going to be dealing with some pretty slim margins, no matter which way you cut it.

When you break apart the two chambers, I think the Democrats are a bit more optimistic about their chances of retaking the House.

Right now, Republicans control that chamber by a razor-thin margin, and the map looks somewhat favorable or more

favorable to the Democrats.

On the Senate side, hope springs a turnal for the Democrats, but it is a much more complicated picture for them.

It's important to remember that only about a third of the Senate will be up for re-election in next year's midterms, and the map is much less favorable to Democrats.

They'll have to win several seats if they stand a chance of taking back control of that chamber.

I just want to jump in and ask the second part of Derek's question.

Do Democrats have any possibility of walking back Trump's policies on immigration, climate, and tariffs if they end up winning a majority in the House and Senate in the midterm elections next year?

I think that if they were to control both chambers of Congress, they could be more effective in their obstruction of Trump.

But in terms of rolling back what he's done, I don't think that that is going to be feasible until a Democrat retakes the White House.

All right, Derek, I hope that answers your question.

Lauren Fedor is the FTE's Deputy Washington Bureau Chief.

Thank you, as always, Lauren.

Thanks for having me.

And if you, our listeners, have any questions about U.S.

politics and the economy, write us an email.

Include your name, where you're from, and if you send us a voice memo of your question, and we love that, we may even play it on the show.

This is Swamp Notes, the U.S.

politics show from the FT.

If you want to sign up for the Swamp Notes newsletter, we've got a link to that in the show notes.

Our show is mixed by Sam Jiavenko and produced by Henry Larson.

We had help this week from the person you just heard from, Lauren Fedor.

Special thanks to Pierre Nicholson.

I'm your host, Mark Filipino.

Our acting co-head of audio is Tophor Forges.

Original music by Hannes Brown.

Check back next week for more U.S.

political analysis from the Financial Times.