"Powell Is Harmful to the US": Trump's Fed Attack Shakes Global Economy [AK Radio]

Trump and Powell Clash Over Interest Rate Policy
Fears Grow That Firing Powell Could Trigger Rate Surge

US President Donald Trump is continuing to intensify pressure on Federal Reserve (Fed) Chair Jerome Powell to resign, drawing significant attention to the potential impact on financial markets and the global economy. President Trump is strongly urging Powell to step down, arguing that the US economy is suffering because Powell has not lowered interest rates enough. However, close aides, including Treasury Secretary Scott Besant, are taking a cautious stance on the matter.

The main reason President Trump is pressuring Chair Powell to resign lies in their differing positions on interest rate policy. During his last presidential campaign, President Trump promised to lower US interest rates by at least 3 percentage points from the start of his term, arguing that rates were too high. However, Chair Powell has maintained a cautious approach to rate cuts, regardless of these demands.

Currently, the US benchmark interest rate is around 4.5%. Chair Powell is moderating the pace of rate cuts out of concern for the potential inflation shock that could result from a rapid decrease. He is pursuing gradual rate adjustments based on comprehensive analysis of the US economic situation and global economic data. For the Trump administration, this cautious approach has become a significant source of pressure.

In particular, the Trump administration's large-scale tax cuts have sharply reduced government revenue. In this situation, high benchmark interest rates are increasing the burden of government bond interest payments, further intensifying fiscal pressure. As a result, there is less room to maneuver policy funds, and the administration's pressure on the Fed is growing stronger.

The controversy over President Trump's pressure on Chair Powell is further fueled by the Fed's independent status. The Fed is an independent agency, separate from the US government, and the president does not have direct authority to appoint or dismiss the chair. This is a unique structure, different from the Bank of Korea or other central banks around the world.

On the 24th (local time), President Donald Trump (left) met with Jerome Powell, Chairman of the Federal Reserve (Fed), at the remodeling site of the Fed headquarters building. Photo by AFP

The reason the Fed enjoys such independence is rooted in the federal nature of the United States. After the major bank run crisis of 1907, the need for a national central bank became clear, leading to the establishment of the Fed in 1913. At the time, state governments opposed the Fed being placed under the executive branch like other countries' central banks, and as a result, a separate Federal Reserve Board was created to exclude executive intervention.

The term of the Fed chair is four years, the same as the US president, and can be renewed once, for a maximum of eight years. Interestingly, current Chair Jerome Powell was appointed by President Trump in 2018. At that time, Trump pressured former Fed Chair Janet Yellen to resign and installed Powell, leading some to argue that the current situation is a kind of "retribution" for Trump.

Treasury Secretary Scott Besant's opposition to removing Chair Powell is based on two main reasons: political and economic. From a political perspective, removing the Fed chair for political reasons carries enormous political costs. In particular, dismissing someone appointed by President Trump himself could also raise questions about political consistency. Moreover, with less than a year left in Powell's term, which ends in May next year, Besant believes there is little reason to take such a major political risk now.

The economic concerns are even more serious. One of the main reasons the Fed commands authority as the key institution managing the US economy is its independence?even the president cannot dismiss the chair at will. If the Fed chair were replaced for political reasons, trust in the Fed could collapse instantly, spreading fear in the markets and potentially causing interest rates to rise instead. Secretary Besant is reported to have persuaded President Trump with an analysis that removing Powell could raise rates by at least 0.5%. This would be the exact opposite of the rate cuts President Trump wants, meaning that firing Powell could actually be counterproductive.

EPA Yonhap News

Despite the mounting pressure, Chair Powell is steadfast in his refusal to step down. He has made it clear that unless he is forced out, he will never resign voluntarily. The driving forces behind Powell's firm position are his commitment to protecting the Fed's independence and his sense of responsibility for the global economy. If the US Fed chair were to resign under political pressure, it could send shockwaves not only through the US but also through global financial markets.

In fact, the events in Turkiye in 2023 serve as a valuable lesson. At that time, President Erdogan, ahead of his third term, dismissed the central bank governor who was planning to raise rates and forced through a low interest rate policy. The result was massive inflation, and after Erdogan was re-elected, rates had to be raised sharply from 8% to 60%. Even now, Turkiye's benchmark rate is 46%, and people prefer to use US dollars over their own currency. Since the US issues the world's key reserve currency, a similar event would have far greater global repercussions than in Turkiye. This sense of responsibility is what motivates Powell to hold his ground until the end.

Considering the current situation, the likelihood of Powell being immediately dismissed appears low. Not only Secretary Besant but also other close aides to President Trump and members of the Republican Party believe that firing the Fed chair would be an extremely risky move. In particular, with the Trump administration currently leading tariff negotiations with various countries, any instability in the US economy could be seen as a weakness by negotiating partners, prompting them to drag out talks or demand unfavorable terms. These strategic considerations also support the case for maintaining the status quo.

Meanwhile, Chair Powell may seek some degree of compromise, taking into account his remaining term and various circumstances. While an immediate 3 percentage point rate cut is impossible, gradual rate reductions could help ease some of the pressure from the Trump administration. Ultimately, this conflict is a complex issue involving three intertwined elements: President Trump's pressure to fulfill campaign promises, the Fed's commitment to independence, and the stability of the global economy. In the coming months, close attention will be paid to how this tug-of-war develops and what impact it will have on both the US and global economies.