FxGlobalHub: Daily news: Trump intensifies conflict with FED over interest rates, accuses Powell of "Playing politics"

Trump publicly criticizes FED Chairman Jerome Powell

U.S. President Donald Trump launched a series of attacks on Federal Reserve Chairman Jerome Powell on Thursday. He accused the head of the central bank of "playing politics" by not cutting interest rates, and he asserted that he has the power to "quickly" remove Powell from office. Trump also emphasized his expectation that Powell would eventually leave and criticized Powell’s recent remarks about the U.S. economy as “a total mess.”

Trump argued that mortgage rates and other forms of consumer credit remain high, adding to the inflation risks arising from his tariff plans, which might prevent the FED from easing monetary policy in the near future.

Trump stated, “The FED really owes the American people a rate cut. That’s the one thing he does well.” He added, “I’m not happy with him. If I want him to leave, he will leave very quickly, trust me.”

These strong comments about Powell echo Trump’s past rhetoric during his first term, raising concerns that the President might attempt to fire Powell due to disagreements over monetary policy decisions. If this were to happen, it could cause a major shock to global financial markets.

FED Chairman's response and potential market impact

Trump has secretly considered firing Powell for months and even discussed the issue with former FED Governor Kevin Warsh, considering Warsh as a potential successor. However, Warsh advised against attempting to remove Powell, arguing that Trump should let Powell finish his term without interference.

It remains unclear whether Trump actually has the authority to dismiss Powell, as Powell was appointed by the President but needs Senate approval for removal. Currently, Trump’s efforts to dismiss members of independent agencies are being reviewed by the U.S. Supreme Court. In a statement on Wednesday, Powell expressed confidence that the case would not affect the Fed's long-standing independence in setting monetary policy, a principle supported by both parties in Congress.

Despite Trump’s assertion that Powell would voluntarily leave if asked, Powell, a former private equity investor with sufficient personal financial means to withstand legal challenges, has made it clear that he does not intend to leave before his term ends in May of next year.

Potential risks to financial markets 

The sharp rhetoric against Powell has raised significant sensitivity within financial markets. U.S. Treasury Secretary Scott Bessent reportedly warned White House officials of potential risks to the financial markets if Trump attempts to fire Powell.

Amid concerns about global economic growth due to Trump’s tariff policies, IMF Managing Director Kristalina Georgieva emphasized the importance of central banks like the Fed maintaining flexibility and credibility, which could be undermined by political interference.

Krishna Guha, Vice Chairman of Evercore ISI, pointed out that a clear threat to the Fed's independence could exacerbate market tensions and increase the risk of stagflation, alongside significant uncertainty.

Forex trader's takeaways:

🔹 FED and USD sensitivity: As Trump’s criticism of Powell intensifies, the Forex market may experience heightened volatility around USD pairs, particularly EUR/USD, GBP/USD, and USD/JPY. Traders should monitor for any significant changes in FED policy outlook that could shift interest rate expectations and USD sentiment.

🔹 Market stability and FED independence: The FED’s independence is crucial for market stability. Any significant challenge to this independence could lead to currency fluctuations in USD/JPY, USD/CAD, and USD/CHF, creating potential opportunities for traders in safe-haven assets like the Swiss Franc (CHF).

🔹 Global Economic Outlook: With global economic growth slowing due to trade policies and tariff tensions, Forex traders should consider the U.S. economic outlook, including potential interest rate changes by FED and ECB (European Central Bank), which may impact global risk sentiment and affect commodity linked currencies like AUD/USD and NZD/USD.

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