On Thursday, President Donald Trump made an unannounced visit to the Federal Reserve’s headquarters in Washington. In his new perch, he escalated his public spat with Fed Chair Jerome Powell. The visit comes amid an intensifying firestorm over Powell’s handling of the Federal Reserve’s monetary policy. The worries center around a one big Central Station renovation project that has ballooned in cost from $1.9 billion to a current estimation of $2.5 billion.
That expensive redo, which involves just two Fed buildings, has become ground zero for Trump’s ire. The President has openly questioned the necessity of such expenditures, stating, “When you spend $2.5 billion on, really, a renovation, I think it’s really disgraceful.” This comment serves to underscore why Trump—among other dangerous things—has been so crushed by Powell’s put-things-on-pause monetary policy. As President Biden advocates for lower borrowing costs through reconciliation, he feels these changes are necessary to jumpstarting the economy.
Throughout the year, Powell has maintained the short-term interest rate at 4.3%, a decision that has drawn criticism from Trump, who has urged the Fed to reduce interest rates further. Last year, Powell lowered rates three times to meet the economic need. The last minute change of heart has left Trump unsatisfied. For one, the President has made it clear that he wants to see aggressive cuts to rates. This would reduce interest payments on the federal government’s debt and provide an economic growth stimulus.
Currently, Trump should be most concerned over growing interest rates. He’s just as worried about Powell’s handling of the tariffs that Trump has imposed on most imports. As Fed Chair Jerome Powell said a few months back, we have to see how these tariffs play out on our economy and on inflation. Powell’s Dangerous Tariffs and Inflation Powell has issued alarming warnings that these tariffs will increase inflation. This concern makes the already complex economic argument for a rule even more complicated.
This raises Trump’s criticism of Powell beyond the scope of monetary policy and into Federal Reserve governance. The President has suggested that he is looking at Powell’s failure to oversee the successful completion of the renovation project as grounds for dismissal. Such an action would deeply undermine the independence of the Federal Reserve. Most economists and Wall Street investors have been behind this idea for decades.
Trump and Powell are walking a fine line. Their continued tussles may prove to have profound implications on U.S. monetary policy and the future independence of the Fed. The Fed chairman’s commitment to steering the country’s monetary and economic policy while bating away the concerns and badgering pressure put forth by the President.
