Former President Donald Trump has recently stepped up his attacks against the Chair of the federal reserve, Jerome Powell. He suggests he may soon “fire” Powell for mismanaging interest rates and US economic policy. On the GOP side, Powell maintains that Trump’s tariff policies would “add uncertainty” and destabilize the economy. He’s been warning about this since April.
During their recent tour of the Federal Reserve Board building in Washington, D.C., which is currently undergoing renovations, Trump and Powell engaged in a heated exchange about the project’s rising costs and its implications. Trump has for a long time been a proponent of keeping federal funds rates low, claiming this is essential for economic growth. In fact, his displeasure with Powell’s actions has boiled over to the point where Trump has previously called Powell a “major loser.”
Rising Costs of Renovation Project
The Federal Reserve’s new headquarters renovation project originally had a price tag of $1.9 billion. It has now grown to an estimated $2.5 billion, a number we got from the Fed. Trump says they’ve gone up even more to about $3.1 billion.
“You just added in a third building, is what that is. That’s a third building,” Trump remarked during the tour, highlighting his concerns about the perceived extravagance of the project. Yet his administration had already attacked some of these renovation efforts as “ostentatious,” increasing the spotlight on federal spending.
During Trump’s visit to the facility, he and Powell walked hand-in-hand. As they strolled, Trump passed Powell a sheet of paper on which Powell took a long, hard look. What was in that document is still unknown, but it provided the necessary dramatic tension to spice up their exchange.
Economic Consequences of Tariffs
In fact, Jerome Powell has issued dire warnings about the economic catastrophe that would result from Trump’s tariff tantrum. He called attention to the fact that today’s tariff heights are “much more greater than expected.” He cautioned that this scenario would lead to decreased economic growth and increased inflationary pressure, which would combine to form an extremely dangerous economic cocktail.
These are important warnings from Powell. Analysts warn that these tariffs have a direct and indirect effect across multiple sectors of the economy. Trump’s insistence on maintaining high tariffs contrasts sharply with Powell’s call for a more measured approach to monetary policy.
Given these circumstances, Powell has found himself constantly emphasizing the need to keep fiscal house in order and recognizing the value of economic stability. He warned that Trump’s all-out trade war might reverse the gains achieved after past recessions and depressions.
The Future of Federal Reserve Leadership
Given Trump’s recent comments on Powell’s tenure, a White House-inspired policy shake-up at the Federal Reserve is likely. He thinks that Powell has been stubborn about interest rates and they’ve been too high, for too long. He is calling Powell to be out of his job in the next eight months. On its face, this statement raises the same kind of questions about the future direction of U.S. monetary policy that it answers.
Scott Bessent, then chief investment officer for U.S. Treasury Secretary Jack Lew, similarly criticized the efficacy of the Federal Reserve as an institution. He indicated that far more thorough review of its effectiveness and oversight may be needed. These types of discussions are more important than ever as our nation faces different economic headwinds and unknowns.
Regardless of what happens as tensions escalate between Trump and Powell, both will be key players to watch in determining where U.S. economic policy goes from here. Their continuing conversation will surely shape how the Federal Reserve tackles difficult tradeoffs in the months to come.
