Report: Trump discussed months ago the possibility of former Federal Reserve Governor Warsh taking over Powell early, but Warsh opposed

Media reports indicate that U.S. President Donald Trump has been privately discussing the possibility of removing Federal Reserve Chairman Jerome Powell for several months, according to sources familiar with the matter, but he has not yet made a final decision on whether to dismiss him before Powell's term ends next year.

The Wall Street Journal reported that according to sources, Trump discussed the possibility of firing Powell before the end of his term during a meeting at Mar-a-Lago with former Federal Reserve Governor Kevin Warsh, who could take over.

Warsh advised Trump not to dismiss Powell and argued that Powell should be allowed to complete his term without interference. The media reported that their discussions continued until February of this year, while other White House officials were still suggesting to Trump in early March that he should dismiss Powell.

Analysts believe that any attempt by Trump to remove Powell would almost certainly end up in the U.S. Supreme Court. If the U.S. president were to dismiss the Federal Reserve chairman due to policy disagreements, it could cast a shadow over the successor and trigger significant turmoil in the financial markets.

Trump Criticizes Powell Three Times in One Day, But There Are Major Divisions in the White House Over Whether to Dismiss Him

On the morning of the 17th, Eastern Time, Trump posted on social media:

"Always too late and wrong" Federal Reserve Chairman Jerome Powell released a report yesterday, which is yet another typical, complete "mess"!

Powell should have lowered interest rates long ago, like the European Central Bank, but he should definitely lower them now. The sooner Powell leaves, the better!

During the midday trading session on Thursday, Trump again called out Powell twice.

Trump said, "I don't think Powell is doing his job well. If I demand it, he has to leave. Powell doesn't make me happy. He is always slow to act."

Trump accused Powell of manipulating politics, saying he is too bad. U.S. interest rates have risen, and rates should be pushed down. Powell should cut rates. Trump also compared it to Europe, saying Europe is cutting rates.

A few minutes later, Trump again "attacked" Powell, saying the Federal Reserve should cut rates, which is owed to the American people. Powell will face significant political pressure.

Trump said the only good thing Powell can do is to cut rates. If Europe cuts rates while the Federal Reserve remains indifferent, it will put the U.S. at a disadvantage. With costs down, U.S. inflation is minimal.

Trump's remarks are clearly a response to Powell's hawkish statement last night. On Wednesday, Powell reiterated what he said more than a week ago, stating that the Federal Reserve "can fully wait until (the situation) is clearer, and then consider adjusting our policy stance." Powell believes that tariffs and other policies from Trump create high uncertainty for the economy, and the Fed needs to avoid tariffs from persistently pushing up inflation.

In fact, Trump has long been dissatisfied with Powell. Trump feels that Powell has been "slow to act" and "lagging" in combating inflation. He has repeatedly urged rate cuts on social media, telling Powell to "act quickly."

Whether to Dismiss Powell: No Consensus in the White House

There is no consensus among Trump's advisory team on whether the president should take such action, and it remains unclear whether Trump will actually dismiss Powell.

Within the White House, Treasury Secretary Scott Bessent has been firmly opposed to the suggestion of dismissing Powell, believing that the benefits of doing so are limited and the risks are extremely high. This week, he described the Federal Reserve's independence in monetary policy as a "jewelry box," a treasure that the United States should never destroy.

Bessent stated that the White House will begin selecting the next Federal Reserve Chair about six months before Powell's term ends this fall. According to several people who have communicated with Kevin Warsh, he left the impression last year that he was almost predetermined to be Powell's successor after Powell's departure.

On the other hand, another faction of advisors is eager to directly challenge Powell. They believe that the Federal Reserve and its supporters in Washington and Wall Street's worship of the Fed's independence lacks constitutional basis and is detrimental to the economy.

Despite the opposition, Trump has privately told those around him that he wants Powell out. He also believes that the provision in Federal Reserve law stating that a chair can only be dismissed for "just cause" would not hold up in court.

Trump Attempts to Overturn Old Precedents

Whether the Federal Reserve Chair can be dismissed before the end of their term remains inconclusive, as it has never happened in history. Trump has previously acknowledged that the law does not provide clear guidance on this matter. In October of last year, Trump said, "I was threatening to fire him at the time, and everyone was asking whether that was even possible."

Trump is trying to dismiss several officials appointed by the Biden administration, but these individuals are citing a 90-year-old legal precedent to challenge Trump's dismissal decision. The Justice Department has expressed a desire to overturn the 1935 "Humphrey’s Executor" case, which established the precedent that the president cannot dismiss commissioners of independent agencies due to policy disagreements.

Some legal scholars believe this case is the strongest legal defense supporting the independence of the Federal Reserve. Some White House officials are closely monitoring whether the Supreme Court will overturn this precedent to determine the next steps regarding Powell.

Powell stated on Wednesday that he believes the case regarding Trump's dismissal of members of the National Labor Relations Board is unlikely to apply to the Federal Reserve. He speculated that even if the Supreme Court were to overturn the 1935 precedent, it might provide another protective mechanism for Federal Reserve governors.

"This is a situation we are watching very closely," Powell said.

As early as 2017, Trump considered nominating Warsh for Federal Reserve Chair before appointing Powell. Warsh served as an economic advisor to President George W. Bush and was appointed as a Federal Reserve governor in 2006, acting as a liaison between the Federal Reserve and Wall Street during the 2008 financial crisis, leaving in 2011. He later collaborated with billionaire investor and Treasury Secretary Bessent's mentor, Stanley Druckenmiller.

Even if Dismissed, Powell is Likely to Continue in Office

Since the high inflation of the 1970s, the Federal Reserve has consistently defended its independence. Recordings show that President Nixon privately pressured Federal Reserve Chairman Arthur Burns for a loose monetary policy before the 1972 election, and Burns complied.

After experiencing high inflation and economic recession in the 1980s, the Federal Reserve and other central banks around the world were granted a high degree of autonomy in monetary policy. The independence of central banks also helps politicians avoid accountability for the "painful" measures taken to control inflation.

Many American and international investors view the independence of the Federal Reserve as the cornerstone for controlling inflation and maintaining the safety of long-term government bonds. Once the market doubts that the Federal Reserve may compromise on inflation control, long-term government bond yields could rise significantly.

Six years ago, Powell made it clear that he would sue over any dismissal decision, and recent public statements indicate that he has not changed his position.

At that time, the leadership of the Federal Reserve decided that if Powell's position as Chairman of the Federal Reserve Board was questioned, the Federal Open Market Committee (FOMC) would hold an emergency meeting to immediately re-elect Powell as its chairman.

The FOMC is composed of seven governors from the Federal Reserve's Washington headquarters and the rotating presidents of 12 regional Federal Reserve Banks, who are nominated by local bank boards and not appointed by the president. The FOMC elects its chairman at its first meeting each year.

Therefore, even if Trump dismisses Powell, he is still likely to continue to effectively lead the Federal Reserve until the lawsuit results are out, making the actual effect of the dismissal minimal.