The American president cannot tell the Federal Reserve chair what to do – and that is by design.
But Trump could fire Powell if he chose to – unprecedented as that would be.
You only need to look at the market reaction to Trump’s language about Powell for a hint at how his firing would impact the global economy.
“Powell’s termination can’t come fast enough,” Trump said last week.
On Monday, he called Powell a “major loser”. This schoolyard language has global economic implications.
The markets – including the all-important bond markets – reacted with sell-offs at the end of the day.
Image: Donald Trump leaves the Rose Garden after announcing Jay Powell as his nominee to become chairman of the US Federal Reserve in 2017. File pic: Reuters
Powell is a registered Republican. Trump hired him as Fed Reserve Chair during his first term but the relationship became fractious, fast.
Yet Trump did not remove him back then.
The position has a four-year term and President Joe Biden nominated him to a second term in 2022. That gives him until 2026.
Trump sees Powell increasingly as a barrier to his agenda. Trump’s ‘burn hot’ economy ideology does not align with Powell’s more pragmatic centrist ideology.
He is unable to influence and bend Powell in the way that he has done with his own cabinet and members of Congress.
In his first term, Trump was talked out of removing Powell. But we know this second term is wholly different. He was talked away from the edge on many issues during his first term. This time, in many areas, he’s jumped.
Remember, Trump forced out two FBI directors – one in each term – because neither was considered to be loyal enough. The FBI, like the Federal Reserve, is considered traditionally to be independent.
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13:27
Could Trump make a deal with the UK?
Of course, the Federal Reserve has a profound global influence in a way the FBI, as an institution, does not.
The fed chair, with his role in setting interest rates and so much more, is arguably the last powerful, independent pillar of the economic policy structure in the US.
Congress has largely devolved its role to Trump and the executive branch, as illustrated by his tariff plans (which Congress could have influenced but chose not to).
Donald Trump’s removal of Jay Powell and replacement with a compliant loyalist could fundamentally shake the global economy.
Powell is one of the few reliable actors left defending economic stability in the US
Donald Trump’sdisparagement of Jay Powell as a “major loser” is not the first time he has insulted the man he appointed as chair of the US Federal Reserve in 2018.
The president appears to have had buyer’s remorse from the moment he approved the former investment banker to fill a post that is fundamental to US economic stability.
Trump was calling for the Fed to cut rates and stimulate the economy long before he was re-elected, but online barbs have more consequence when fired from the Oval Office than the campaign trail.
Equivalent to the Governor of the Bank of England, the chair of the Federal Reserve ultimately directs US monetary policy, including the setting of short-term interest rates, with the aim of maintaining high employment and stable inflation.
That makes Powell a crucial figure amid the chaos and incoherence of Trump’s economic policy, which in less than 90 days has shattered the certainties that made America the world’s largest economy, and the dollar the global reserve currency.
Image: Jay Powell speaks to the media in March. File pic: Reuters
The market reaction to Trump’s venting against Powell, and briefing that his administration is considering ways to remove him from office, suggests investors fear it will make a bad situation worse.
As traders returned from the Easter weekend with the president’s criticism of Powell ringing in their ears, the “Trump slump” deepened.
US stocks and the dollar fell, while yields on US Treasuries – the mechanism by which the government borrows money – rose, indicative of falling bond prices as investors dumped US debt.
Gold prices, meanwhile, hit a record $3,500 an ounce as investors piled into what remains the pre-eminent “safe haven” asset in times of uncertainty.
The combination of falling equity, currency and bond prices is a toxic trifecta more usually associated with emerging economies in political crisis, not the mighty United States.
We saw something similar here in 2022, when Liz Truss and Kwasi Kwarteng’s unfunded tax cuts, presented without an independent assessment from the Office for Budget Responsibility, caused a run on the gilt market.
Then it was the Bank of England that stepped in to stabilise the bond market.
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1:03
How will tariffs impact you?
What’s happening in the US is both bigger and more consequential.
Trump’s tariff program, seemingly imposed and withdrawn by presidential whim, has already proved disastrous for market sentiment, with expectations of higher inflation and lower growth, at home and globally, set to be confirmed by the International Monetary Fund in Washington this week.
Powell and the Fed are among the few reliable actors in this drama, with markets betting their next meeting in May will see rates held, in part because of inflationary policy made in the White House.
The prospect of Powell being replaced by a more pliant figure hand-picked by Trump would pull another block from the wobbling Jenga tower of US economic credibility.
The independence of the Fed is one of the foundations of American stability, an assumption that underpins the $29 trillion Treasuries market that makes the world’s debt go round.
If investors large and small, state and private, fear that the US is not good for that debt, it could be calamitous for American pre-eminence and the global economy.
Powell’s term ends in 2026 and he believes he cannot be removed by presidential decree.
That does not mean he will not face more pressure to stand aside.
Donald Trump has said he plans to hit Canada with a 35% tariff on imported goods, as he warned of a blanket 15 or 20% hike for most other countries.
In a letter to Canadian Prime Minister Mark Carney, the US president wrote: “I must mention that the flow of Fentanyl is hardly the only challenge we have with Canada, which has many Tariff, and Non-Tariff, Policies and Trade Barriers.”
Mr Trump’s tariffs were allegedly an effort to get Canada to crack down on fentanyl smuggling, and the US president has expressed frustration with Canada’s trade deficit with the US.
In a statement Mr Carney said: “Throughout the current trade negotiations with the United States, the Canadian government has steadfastly defended our workers and businesses. We will continue to do so as we work towards the revised deadline of August 1.”
He added: “Canada has made vital progress to stop the scourge of fentanyl in North America. We are committed to continuing to work with the United States to save lives and protect communities in both our countries.”
The higher rates would go into effect on 1 August.
Shortly after Mr Trump unveiled his “Liberation Day” tariffs on 2 April, there was a huge sell-off on the financial markets. The US president later announced a 90-day negotiating period, during which a 10% baseline tariff would be charged on most imported goods.
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“We’re just going to say all of the remaining countries are going to pay, whether it’s 20% or 15%. We’ll work that out now,” he said.
He added: “I think the tariffs have been very well-received. The stock market hit a new high today.”
The US and UK signed a trade deal in June, with the US president calling it “a fair deal for both” and saying it will “produce a lot of jobs, a lot of income”.
Sir Keir Starmer said the document “implements” the deal to cut tariffs on cars and aerospace, adding: “So this is a very good day for both of our countries – a real sign of strength.”
It comes as Russia’s deputy foreign minister, Sergei Ryabkov, said a new round of talks between Moscow and Washington on bilateral problems could take place before the end of the summer.
A Palestinian activist who was detained for over three months in a US immigration jail after protesting against Israel is suing Donald Trump’s administration for $20m (£15m) in damages.
Lawyers for Mahmoud Khalil have filed a claim against the administration alleging he was falsely imprisoned, maliciously prosecuted and smeared as an antisemite as the government sought to deport him over his role in campus protests.
He described “plain-clothed agents and unmarked cars” taking him “from one place to another, expecting you just to follow orders and shackled all the time”, which he said was “really scary”.
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0:54
Mahmoud Khalil reunites with family after release
Mr Khalil said he was not presented with an arrest warrant and wasn’t told where he was being taken.
He said the detention centre he was taken to was “as far from humane as it could be” and “a place where you have no rights whatsoever”.
“You share a dorm with over 70 men with no privacy, with lights on all the time, with really terrible food. You’re basically being dehumanised at every opportunity. It’s a black hole,” he added.
Mr Khalil said he would also accept an official apology from the Trump administration.
The Trump administration celebrated Mr Khalil’s arrest, promising to deport him and others whose protests against Israel it declared were “pro-terrorist, antisemitic, anti-American activity”.
Mr Khalil said after around 36 hours in captivity he was allowed to speak to his wife, who was pregnant at the time.
“These were very scary hours, I did not know what was happening on the outside. I did not know that my wife was safe,” he said.
Mr Khalil said administration officials had made “absolutely absurd allegations” by saying he as involved in antisemitic activities and supporting Hamas.
“They are weaponising antisemitism, weaponising anti-terrorism in order to stifle speech,” he said. “What I was engaged in is simply opposing a genocide, opposing war crimes, opposing Columbia University’s complicity in the war on Gaza.”
A State Department spokesperson said its actions toward Mr Khalil were fully supported by the law.
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Asked about missing the birth of his son while he was in prison, Mr Khalil said: “I don’t think there’s any word that can describe the agony and the sadness that I went through, to be deprived from such a divine moment, from a moment that my wife and I had always dreamed about.”
Meanwhile, the deportation case against Mr Khalil is continuing to wind its way through the immigration court system.
Donald Trump has praised the Liberian president’s command of English – the West African country’s official language.
The US president reacted with visible surprise to Joseph Boakai’s English-speaking skills during a White House meeting with leaders from the region on Wednesday.
After the Liberian president finished his brief remarks, Mr Trump told him he speaks “such good English” and asked: “Where did you learn to speak so beautifully?”
Mr Trump seemed surprised when Mr Boakai laughed and responded he learned in Liberia.
The US president said: “It’s beautiful English.
“I have people at this table who can’t speak nearly as well.”
Mr Boakai did not tell Mr Trump that English is the official language of Liberia.
The country was founded in 1822 with the aim of relocating freed African slaves and freeborn black citizens from the US.
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Later asked by a reporter if he’ll visit the continent, Mr Trump said, “At some point, I would like to go to Africa.”
But he added that he’d “have to see what the schedule looks like”.
Trump’s predecessor, President Joe Biden, promised to go to Africa in 2023, but only fulfilled the commitment by visiting Angola in December 2024, just weeks before he left office.