US Treasury Secretary’s Advice to Trump on Fed Chair Powell

US Treasury Secretary Scott Bessent reportedly advised President Donald Trump privately not to dismiss Fed Chair Jerome Powell.

Sources familiar with the matter indicated that Bessent elaborated on the risks such a step could pose to the economy, markets, and politics, particularly as Powell enters the final ten months of his term.

Key Points of Discussion

• Interest Rate Cuts: Bessent pointed to signals suggesting that the Fed was preparing to cut interest rates by the end of the year.
• Market Reactions: He highlighted that a potential dismissal could trigger negative reactions in the financial markets.
• Political Challenges: Bessent warned about the political and legal implications of impeachment proceedings.
• Current Economic State: He argued that dismissing Powell was unnecessary since the economy was performing well and the markets were responding positively to Trump’s policies.

Context of the Conversation

While discussions about Powell’s dismissal have been ongoing for months, they intensified last week. Trump has frequently expressed dissatisfaction with the Fed’s interest rate policies. A senior White House official noted that Trump mentioned considering firing Powell in a meeting with Republican lawmakers. However, he later reassured reporters there were no such plans.

These discussions influenced financial markets, raising concerns that politically motivated changes within the Federal Reserve could compromise its independence and inflation control.

Past Recommendations

In April, the Wall Street Journal reported that Bessent, alongside Commerce Secretary Howard Lutnick, had warned against firing Powell. Recent advice includes the possibility of legal challenges if Powell were removed, with court proceedings possibly delaying until after Powell’s term expiration in May.

Moreover, some advisors suggested that if Powell is ousted, Fed Vice Chair Philip Jefferson would step in as acting chairman, although he is also seen as aligned with Powell and appointed by Biden. They emphasized the difficulty in quickly confirming a new nominee given the Senate’s summer recess.

Long-term Considerations

Bessent’s message to Trump included an important opportunity: the president will have the option to appoint two key members to the Fed in early 2025, influencing its future direction. Fed Board Member Adriana Kugler’s term ends in January, followed by Powell’s in May, giving Trump the chance to shape the Fed’s long-term course.

*This is not investment advice.