President Trump is openly mulling the termination of Fed Chair Jerome Powell, who won’t give Trump the interest rate cuts he wants. If Trump really wants lower rates, however, the best person to fire would be himself, not Powell.
If Trump had not enacted a vast set of reckless tariffs during the past two months, the Fed would probably be cutting interest rates and providing Trump with the economic tailwind he seeks. After Trump’s election last November, markets placed the odds of a Fed rate cut by early May at 85%, according to the CME Group’s FedWatch tool. The Fed had already started cutting rates two months earlier, a sign of confidence that inflation was finally licked and the Fed could ease up on monetary policy. By December, the Fed had cut short-term rates a full percentage point.
The only reason the Fed stopped cutting is that the tariffs Trump started imposing in February are a hefty tax that will raise the cost of some $3 trillion worth of imports — and most likely bring inflation back. Most economists expected inflation to be 2.5% or less by the end of 2025, but Trump’s tariffs have pushed those forecasts into the 4% range or higher.
The Fed cannot cut rates when the economy is slowing and inflation is already headed upward.
“Cutting interest rates into stagflation is a recipe for higher inflation, higher interest rates, higher unemployment, and slower growth,” said Joe Brusuelas, chief economist at RSM. One of the Fed’s main jobs is to keep inflation low, and Trump is pressuring the Fed to violate its own charter by making inflation worse instead of better.
Trump can’t acknowledge that his own mistakes are causing reflation and a market sell-off, so he’s clearly scapegoating Powell, who he called a “major loser” in an April 21 social media post.
The Fed chair generally avoids political smackdowns, so Powell will mostly grin and bear it while Trump unloads. That might be as far as it goes. Betting markets think there’s only a 20% chance Trump will fire Powell, who might be more useful to Trump as the incumbent he can blame for a soft economy than as an ousted former Fed chair free to speak his mind.
The odds of any president firing the Fed chair should be approximately 0%, however, given that the Fed is the world’s most important financial institution and must be free of political interference. Even a 20% chance of Trump meddling with the Fed was enough to cause yet another stock market tumble as investors mulled the possibility of Trump bungling monetary policy just as he has trade policy.
If Trump does fire Powell, the likely result will be the opposite of what Trump is after.
“President Donald Trump’s increased rhetoric against Powell represents a significant near-term negative threat to the markets, especially as recent tariff uncertainty has heightened concerns over Trump’s handling of the economy,” analysts at financial firm Raymond James wrote in an April 21 analysis. The firm points out that Treasury Secretary Scott Bessent has reportedly warned Trump that firing Powell could further destabilize financial markets that are already rattled by extensive tariffs.
More market turmoil would probably push rates higher, not lower, worsening the trends that are already vexing Trump. While Trump wants the Fed to cut short-term rates that mainly affect banks, he also wants to see lower long-term rates on mortgages and other consumer and business loans. The Fed doesn’t directly control those rates, which are set in the market by investors buying and selling different types of assets.
Trump’s go-it-alone protectionism has triggered an unusual market reaction in which global investors seem to be selling US assets in general, which almost never happens. In the usual pattern, if shaky markets lead investors to sell risky US assets such as stocks, a lot of the money typically goes into safe US assets such as Treasury securities. When investors get more comfortable with risk, money flows from US bonds back into stocks.
But investors have been selling both risky and safe US assets at the same time, with more money going into gold and foreign currencies. Weaker demand for long-term Treasury bonds means the issuer, the US government, has to pay more to attract buyers, which is the same as higher interest rates. Trump is already warping the financial system enough to send rates higher when they should be going lower and to drive investors out of some US assets altogether.
Firing Powell would likely exacerbate those pressures, as investors got the message that the Fed would do Trump’s bidding by cutting short-term rates at the wrong time.
Trump target: Chair of the Board of Governors of the Federal Reserve System Jerome Powell speaks during an event hosted by the Economic Club of Chicago on April 16, 2025, in Chicago. (AP Photo/Erin Hooley) ·ASSOCIATED PRESS
“Domestic and foreign investors are de-risking and diversifying away from dollar-denominated assets,” Brusuelas said. “Cutting the policy rate into conditions best described as stagflation would only intensify that movement, driving capital flows into euros, yen, and francs while driving interest rates higher.”
Trying to fire Powell would also roil markets while still leaving Trump a long way from the lower short-term rates he wants. The move would be litigated, and many analysts think Trump would lose, with courts finding the president lacks the authority to fire the Fed chair.
Even if Trump won and he was able to fire Powell, the Senate would have to approve a replacement at a time when Republican members of Congress are growing antsy with Trump’s demolition of the economy and the ominous portents for their own reelection odds. The Senate might not approve a Trump toady.
If it did, the Fed chair would still represent just one of 12 votes on the central bank’s rate-setting committee. And most of the others would likely resist badly timed rate cuts meant only to appease the president. In an April 21 analysis, Capital Economics mused about a Fed rate-setting committee “hostile” to a new chair that might still refuse to lower rates. That could lead to Trump trying to fire more members of the Fed board, which “would go down particularly badly in the markets.”
So, a Trump effort to fire Powell could harm Trump’s own economic agenda enough to make it counterproductive for Trump. That’s the rational way of looking at it. It’s also true that investors who used to think Trump cared about markets aren’t so sure anymore.
Maybe the rational outcome won’t be the actual one.
Rick Newman is a senior columnist for Yahoo Finance. Follow him on Bluesky and X: @rickjnewman.
