Trump continues to pressure Powell! Chicago Fed President warns: Do not restrict the independence of the Federal Reserve

According to the Zhitong Finance APP, after former President Trump recently pressured Federal Reserve Chairman Jerome Powell, Chicago Fed President Austan Goolsbee warned last Sunday about Trump's attempts to limit the independence of the Federal Reserve. He stated in a program, "Economists almost unanimously agree that monetary independence free from political interference, meaning that the Federal Reserve or any central bank can do what it needs to do, is really important."

Goolsbee expressed, "I strongly hope we do not fall into an environment where monetary independence is questioned. This would damage the credibility of the Federal Reserve." He added that in countries where central banks lack monetary independence, "the fact is that inflation rates are higher, economic growth is slower, and the job market is worse."

Challenges to Federal Reserve Independence

Last Wednesday, Powell's speech at the Chicago Economic Club hinted that the Federal Reserve would not take emergency measures in response to market fluctuations. Powell stated that tariff measures could temporarily push up inflation, posing challenges to the central bank's dual policy goals of price stability and full employment. Avoiding prolonged high inflation in the future depends on the magnitude of the tariff impacts, the speed of transmission, and whether long-term inflation expectations can ultimately stabilize. If inflation conflicts with employment targets, Powell suggested that the Federal Reserve might prioritize controlling inflation. He stated, "Without price stability, we cannot achieve a strong labor market that benefits the public in the long term."

Powell remarked, "In some cases, we may find ourselves in a situation where there is tension between targets." "At that time, we need to assess the extent to which the economy deviates from various targets and the time differences required to achieve different goals." This statement was interpreted by the market as an increase in uncertainty regarding the monetary policy path. Powell did not explicitly state his views on interest rate trends but pointed out, "For now, we have ample room to hold policy steady and wait for clearer economic signals before considering whether to adjust our policy stance."

Powell's remarks immediately drew strong criticism from Trump. On April 17, Trump accused the Federal Reserve of needing to cut interest rates long ago and stated that Powell could be removed immediately. On April 18, Trump reiterated at the White House that Powell should lower interest rates. On the same day, White House National Economic Council Director Kevin Hassett confirmed that Trump and his team were exploring whether they could dismiss Powell.

In fact, since Trump began his second term, the conflict between him and Powell has intensified. Trump has repeatedly called for the Federal Reserve to cut interest rates since taking office. Analysts point out that the conflict between Trump and Powell highlights the profound differences between the U.S. government and the central bank regarding monetary policy. Trump has consistently adhered to the principle of "economy first," believing that tax cuts and deregulation can inject strong momentum into economic growth. In contrast, Powell places greater emphasis on long-term economic stability and the prevention of potential risks.

Meanwhile, this conflict has sparked widespread concerns about the potential erosion of the Federal Reserve's independence. The independence of the Federal Reserve has long been regarded as one of the key factors in maintaining macroeconomic stability. However, whenever political forces attempt to interfere with central bank policy, it often leads to uncontrolled inflation or damaged market confidence. Former Federal Reserve Chairman Ben Bernanke warned: "Political interference in monetary policy can lead to adverse boom-bust cycles, ultimately resulting in economic instability and rising inflation." Sarah Binder, a senior fellow at the Brookings Institution, also pointed out: "The Federal Reserve needs public confidence. But if the president tries to remove Powell, it will only increase uncertainty." Kathy Jones, chief fixed income strategist at the Schwab Center for Financial Research, cautioned that attempting to fire Powell could exacerbate the sell-off of U.S. Treasuries and the dollar.

People close to Trump seem to understand the market's concerns about the erosion of the Federal Reserve's independence. According to insiders, Trump had discussed the possibility of removing Powell before the end of his term with former Federal Reserve Governor Kevin Walsh and considered having Walsh take over as chairman of the Federal Reserve. However, Walsh advised Trump against firing Powell, arguing that he should be allowed to complete his term to avoid interfering with the Fed's independence. U.S. Treasury Secretary Janet Yellen privately warned Trump that replacing the Federal Reserve chairman could increase market uncertainty, thereby undermining investor confidence.

Can Trump Fire Powell?

Trump claims he has the power to remove Powell. He stated, "If I want him out, he will be gone immediately, believe me." He also added that he is extremely dissatisfied with Powell's performance on interest rates, accusing him of "playing politics."

Powell stated last November that he would not resign due to Trump's threats, and the law does not allow Trump to unilaterally fire him. This statement not only reassured the market's anxiety but also demonstrated Powell's firm determination to defend the Fed's independence. Last Wednesday, Powell reiterated that the Fed's independence "is a legal issue," and "we will not be removed unless there is just cause."

If Trump truly attempts to remove Powell, the related events would almost certainly be brought before the U.S. Supreme Court. This move would not only place immense pressure on Powell's successor but could also trigger market turmoil, as the market would worry about the precedent of a Fed chairman being removed due to policy disagreements.

Insiders revealed that the Trump administration submitted an emergency request to the Supreme Court on April 12, seeking authorization for the president to immediately fire National Labor Relations Board (NLRB) Chair Gwen Wilcox and Merit Systems Protection Board (MSPB) Chair Kathy Harris. This action is seen as a direct challenge to the 1935 Humphrey's Executor case precedent. If the Supreme Court supports this request, it would clear legal obstacles for Trump to fire Powell.

Although current law requires "just cause" to fire the Federal Reserve chairman, if the Supreme Court overturns the Humphrey's Executor case, it would break an 80-year balance of power. At that point, the president could invoke constitutional provisions to directly remove Powell without providing specific reasons