President Trump backed away from his threats to remove Federal Reserve Chair Jerome Powell.
That could end up serving a political purpose if the US economy turns south, according to some Fed watchers.
“Firing Powell would make it much more difficult to use him as a scapegoat,” RBC Capital Markets analysts said in a note this past week.
“It will get much harder to deflect the narrative around bad economic/market outcomes away from tariff policies.”
Many economists expect the US economy to slow, or perhaps even descend into recession, as the Trump administration rolls out new tariffs on many of its trading partners — even if it is able to strike new deals with China or other large countries in the months ahead.
President Trump and Jerome Powell in happier days, in 2017, after Trump nominated Powell as the next chair of the Federal Reserve. (Sau Loeb/AFP via Getty Images) ·AFP Contributor via Getty Images
Trump even acknowledged the possibility of a slowdown when arguing this past week why the central bank should lower interest rates immediately.
“There can be a SLOWING of the economy unless Mr. Too Late, a major loser, lowers interest rates, NOW,” the president posted on his social media website, Truth Social, last Monday, saying that “‘Preemptive Cuts’ in Interest Rates are being called for by many.”
Read more: How much control does the president have over the Fed and interest rates?
The president told reporters Tuesday that he has “no intention of firing” the policymaker, easing speculation about Powell’s fate just days after Trump asserted on social media that “Powell’s termination cannot come fast enough.”
But that didn’t mark an end to Trump’s Powell criticisms.
On Wednesday evening in the Oval Office, Trump said, “I might call” Powell and again repeated his view that “I believe he’s making a mistake by not lowering interest rates.”
“He’s keeping rates too high,” Trump added, arguing that the central bank chair didn’t act fast enough to push down inflation earlier this decade. “He historically has been late.”
On Thursday, Trump again called for the Fed to adjust its monetary policy. “I hope they lower interest rates,” he told reporters. “That’s a smart thing to do, be ahead a little bit, although already it’s a little bit late.”
Treasury Secretary Scott Bessent and Commerce Secretary Howard Lutnick warned Trump that removing Powell would trigger both market chaos and a legal fight, according to the Wall Street Journal.
Treasury Secretary Scott Bessent, middle, and Commerce Secretary Howard Lutnick, right, listen as President Trump speaks in the Oval Office last Wednesday. (Jabin Botsford/The Washington Post via Getty Images) ·The Washington Post via Getty Images
Lutnick also told the president that it might not lead to what the president wants — lower rates — because other members of the Fed board would probably approach monetary policy in the same way, according to the Wall Street Journal.
“If Trump is set on lowering interest rates then he will have to fire the other six Fed board members too, which would trigger a more severe market backlash, with the dollar falling and rates at the long end of the yield curve rising,” Capital Economics chief North America economist Paul Ashworth said.
There is another danger in acting, RBC Capital Markets said in its note this past week. The market may sell off on a Powell firing, which would also help pull blame back toward Trump.
“Keeping Powell around and continually pestering him on social media makes it much easier to muddy the waters and pull the narrative away from tariffs,” the RBC analysts wrote.
What the Fed does on rates will certainly be a flash point in the months to come between the White House and the central bank amid worries that tariffs will push up inflation while dragging down economic growth.
Powell has predicted a tough decision ahead for the Fed as it weighs both sides of its mandate for stable prices and full employment, saying there is a “strong likelihood” that the economy will be moving away from both of the Fed’s goals for the “balance of the year, or at least not making much progress.”
If anything, Powell has suggested he may give preference to controlling inflation, noting that without price stability, the Fed cannot achieve a strong job market for an extended period.
He has also made it clear he wasn’t yet sure whether the inflationary effects from tariffs would be temporary or long-lasting.
Read more: What Trump’s tariffs mean for the economy and your wallet
That is not going to win him any plaudits from the White House. Bessent has made it clear he views any tariff inflation as temporary.
“Do I think that President Trump is going to rattle his saber right up to the day that Jay Powell finishes his term?” Ann Berry, Threadneedle Ventures founder, noted in a recent Yahoo Finance appearance. “Absolutely.”
This is certainly not the first time a Fed chair has faced an array of political pressures from the occupant of the Oval Office.
William McChesney Martin, former Fed chair, pictured in 1968. (UPI/Bettmann Archive/Getty Images) ·Bettmann via Getty Images
In the 1960s, President Lyndon Johnson pressured William McChesney Martin to temper the Fed’s fight against inflation while Johnson’s Great Society programs and the buildup of the war in Vietnam added demand pressure to the economy.
In the 1970s, President Nixon leaned on Fed Chair Arthur Burns. As Burns was being sworn in, Nixon even joked that the applause he was receiving was “a standing vote of appreciation in advance for lower interest rates and more money.”
He added a further jibe that he respected Burns’s independence but added, “I hope that, independently, he will conclude that my views are the ones that should be followed.”
Arthur Burns, former chair of the Federal Reserve, pictured in 1972. ·Bettmann via Getty Images
Nixon leaned on Burns to ease monetary policy going into the 1972 election to aid Nixon’s chances. While wage and price controls initially helped keep inflation down, when controls were lifted in late 1973, inflation soared to more than 13%.
“It took a decade or more for the Fed to arrest control of inflation and get it down to a moderate level,” former Richmond Fed President Jeffrey Lacker told Yahoo Finance.
Even Paul Volcker, who chaired the Fed from 1979 to 1987 and tends to be remembered as the leader who finally broke the back of inflation, faced his share of heat.
Paul Volcker, former Fed chair, stands with hands on hips and smokes a cigar during a meeting in Washington, D.C., in 1982. ·Bettmann via Getty Images
In 1984, Ronald Reagan and his chief of staff, James Baker, summoned Volcker to the White House and — according to the telling in Volcker’s memoir — ordered him not to raise interest rates before that year’s election.
“I was stunned,” Volcker wrote, but he added that he was able to avoid escalating the episode because “I wasn’t planning tighter monetary policy at the time.”
Instead of responding one way or another, Volcker said he simply left the meeting without saying a word.
Fed Chair Powell was asked in December whether he was ever pressured by the White House not to raise rates, as Volcker was in the 1980s.
Powell said that “nothing exactly like that happened,” but he acknowledged having clashes with Trump during his first term that were aired publicly and didn’t change in private settings.
“The president said the same things to me privately as he said publicly,” Powell said.
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