The former president is playing nice with the Fed chair—for now.
In what feels like the monetary policy equivalent of a Mafia boss saying "you've got nothing to worry about," Donald Trump declared this week he has "no intention" of firing Federal Reserve Chairman Jerome Powell if voters send him back to the White House.
Let's be real—this is the same Trump who spent years publicly eviscerating Powell, calling him "clueless" and suggesting he might be a "bigger enemy" than Chinese President Xi Jinping. White House insiders during Trump's administration leaked that he'd explored whether he could legally demote the Fed chair. But sure, Powell should feel perfectly secure now.
The markets barely flinched at Trump's statement. No surprise there. Wall Street types have developed a sophisticated Trump-statement-translation algorithm: divide by ten, subtract the hyperbole, and wait to see if he says the opposite tomorrow.
What makes this fascinating (at least to Fed nerds like me) is watching Trump's relationship with monetary policy evolve. During his presidency, he broke with decades of Republican orthodoxy by consistently pushing for lower interest rates. Traditional GOP thinking typically favors tight money and inflation fighting, but Trump viewed the stock market as his personal scoreboard—and he wanted Powell juicing the numbers.
The whole situation creates a bizarre reality where "I'm not planning to fire the Fed Chair" qualifies as economic news. It shouldn't, right? That should be the default assumption in a country with an independent central bank.
I've covered monetary policy for years, and there's a framework I use when thinking about how presidents interact with the Fed. Picture a triangle with three corners: independence (letting the Fed operate without political meddling), accountability (ensuring the central bank serves public interests), and predictability (giving markets reliable forward guidance).
Most presidents emphasize two corners at the expense of the third. Trump's first term sacrificed independence for his version of accountability. Biden has mostly respected independence while emphasizing predictability. What's unclear—and what makes markets nervous—is which approach Trump might take in a hypothetical second term.
Here's the timing that makes everything awkward: Powell's term as chair runs until May 2026. That means whoever wins in November will get to decide whether to reappoint Powell or pick someone new. Talk about conducting monetary policy with a sword hanging over your head!
Think about the alternative scenario. What if Trump had said, "On day one, I'm replacing Powell with someone who'll slash rates to zero"? The dollar would've tanked. Markets would've freaked. We'd be having an entirely different conversation about Fed independence and political interference.
The history of president-Fed chair relationships is filled with tension. LBJ allegedly physically intimidated William McChesney Martin, shoving him against a wall while complaining about interest rates. (And people think Trump's tweets were bad!) Paul Volcker endured enormous pressure while breaking inflation in the 1980s. Arthur Burns caved to Nixon's demands with disastrous results.
What investors and businesses ultimately want isn't any specific policy outcome but confidence that decisions are being made based on economic conditions rather than to please politicians. Powell—despite facing a global pandemic, supply chain meltdowns, and the fastest inflation spike in decades—has maintained that perception reasonably well.
So what should we make of Trump's non-committal statement? Perhaps it signals a begrudging recognition that central bank independence has some value. Or maybe—and this seems more likely—he's simply focused on other potential appointments first.
Either way, if I were Powell, I wouldn't be updating my LinkedIn profile just yet... but I might keep it current, just in case.
