U.S. Treasury Secretary Scott Bessent has reportedly conveyed quiet opposition to President Donald Trump, who suggested the dismissal of Federal Reserve (Fed) Chair Jerome Powell. Bessent noted to the president that such a dismissal could lead to market shocks and legal disputes without economic benefits.
Chair Powell's term lasts until May of next year. However, as President Trump recently began to lay the groundwork for dismissal by raising concerns about the Federal Reserve's headquarters remodeling budget overruns, voices of concern have emerged from the markets, media, and within the administration. On the 20th, the Wall Street Journal (WSJ) warned that "if the Fed becomes subordinate to politics, its inflation defense could crumble," and financial institutions like JPMorgan joined in the criticism, citing rising inflation expectations.
Minister Bessent reportedly detailed to President Trump the market reactions and legal risks that could arise from Powell's dismissal. Given that the Fed has signaled the possibility of cutting rates twice before the end of the year, attempting to dismiss Powell recklessly could lead to a situation where the administration gains nothing, especially considering the potential for Powell to file a lawsuit. Additionally, concerns were raised that after the Senate enters recess in August, the selection and confirmation of a successor could be delayed, creating further uncertainty.
This controversy is also impacting the markets. The Fed's preferred measure of core inflation remains at 2.7%, while expectations for inflation have risen to 2.36%. The WSJ pointed out in an editorial that "the politicization of the Fed could collapse market confidence like a car with a broken brake."
Concerns are also being expressed within the Republican Party. Some Republican senators on the Senate Banking Committee stated, "Dismissing Powell is inappropriate, and the market wants an independent central bank." Republican Senate Minority Leader John Tune also remarked, "The Fed is key to market stability, and political interference should be cautious."
President Trump has officially denied the possibility of dismissing Powell, but internal pressure has intensified as Russell Vought, Budget Director of the White House, has signaled an upcoming audit of the Fed's remodeling project. Vought has raised issues regarding the local planning commission's approval process and omissions in design changes, indicating an effort to secure "justifiable grounds" for Powell's dismissal.
Bessent's opposition is seen as a pragmatic approach based not just on protecting the Fed, but also on economic realities. There is a belief that if the administration pursues Powell's dismissal for political purposes, it could undermine the Fed's credibility and create unnecessary tension in the markets.
Meanwhile, President Trump is reportedly reviewing multiple candidates for Powell's successor, including former National Economic Council Chair Kevin Hassett. There are expectations that an announcement regarding a successor could come as early as September.