President Donald Trump will likely back down in his war against Federal Reserve Chair Jerome Powell, a CNN panel suggested on Wednesday, following weeks of the president suggesting he may end up firing the Fed chair over his refusal to lower interest rates.
“It appears for now he'll keep his sort-of punching bag in place, and then he'll have a bag to punch as he complains about interest rates and the economy,” CNN’s Brianna Keilar said Wednesday.
After reportedly flip-flopping on whether he would fire Powell, Trump appeared Wednesday to put the matter to rest, claiming it would be “highly unlikely” that he ends up firing the Fed chair. Numerous outlets reported that Trump had approached Republican lawmakers with the idea of axing Powell, only to ultimately decide against it after receiving pushback.
Scott Luncicome, author and vice president of general economics at the CATO Institute, noted that a potential blowback from markets was also a likely component of Trump’s decision to back off replacing Powell with a more subservient appointee.
“That's going to keep a check on Trump's decisions related to Powell and the Federal Reserve,” Luncicome said, speaking with Keilar. “A really severe adverse market reaction is the last thing that Trump wants right now, and I don't think he's going to go forward if the markets do pull back in that way.”
Markets briefly fell on Wednesday after a report that Trump would likely fire Powell, but climbed back upon Trump’s comments dispelling the report later that same day. It was the fear of market blowback, Luncicome said, alongside the uncertainty in how a new chair at the Fed would operate, that will likely lead to Trump folding.
“It's not clear that Trump would get exactly what he wanted right away, and I think that's one of the reasons why, perhaps, people were advising him to take a step back on this,” Luncicome said.
Trump’s feud with Powell largely stems from the Fed's refusal to further lower interest rates, with Trump alleging that Powell is acting partisanly, pointing to several rate drops implemented during President Joe Biden’s tenure. The Fed has yet to drop rates under Trump’s second term, with Powell stating that tariff-related inflation has caused market uncertainty that would not warrant immediate further cuts.
