Trump vs. Powell could be the first big fight over the economy

Just a few days after the election, the central bank cut interest rates by a quarter point on Thursday, as expected. But all eyes were on Powell and what he would say about the new president. Fed officials are trying hard to avoid politics, but Powell was pressed by reporters about his future as chairman.

During a press conference, he was asked if he would resign if Trump asked to do so, and Powell simply replied, “No.” He was later asked whether he believed a president had the authority to fire or demote a Fed chairman or another Fed official in a senior position, and Powell replied, “That's not allowed by law.”

The Trump campaign did not immediately respond to a request for comment.

During his first term as president, Trump appointed Powell as Fed chair in 2018, replacing Janet Yellen, who was appointed by Barack Obama. But Trump later clashed with Powell when the Fed chief rejected calls for looser monetary policy.

Powell's term as chairman ends in May 2026 and his term as Fed governor ends in January 2028 – he could hold on all the time against Trump's wishes.

Meanwhile, Trump has said that as president he should at least have an opinion on interest rates, and his economic adviser Scott Bessent has suggested that an imminent appointment of Powell's successor could serve as “shadow Fed chair,” which Powell essentially agrees to a lame duck would make with less impact.

Currently, the Fed is in an easing cycle, consistent with Trump's desire to provide greater support to the economy and financial markets.

But signs that the economy remains robust and inflation is stubborn could slow the pace of the Fed's rate cuts, with some on Wall Street warning that a pause in rate cuts may even be necessary.

After Thursday's rate cut, some analysts said the Fed would ease rates again in December, but would hold rates steady in January and not cut them further.

And if Trump puts his expansionary proposals for the economy into action, they are widely seen to increase inflationary pressures and limit the Fed's ability to cut interest rates further.

Trump has vowed to increase tariffs across the board, with tariffs against China in particular skyrocketing and driving up prices on imported products. His planned crackdown on immigration policy and his mass deportation campaign appear to be putting pressure on wages.

He has also promised to extend tax cuts from his first term and reduce the corporate tax rate even further. He has also announced a series of cuts, including taxes on tips, overtime pay and Social Security payments, as well as exemptions for the military, veterans and first responders. He has even flirted with abolishing income taxes entirely. Such massive tax cuts would boost consumer demand and inflation and potentially increase the deficit.

For his part, Powell insisted Thursday that the Fed is not setting monetary policy in anticipation of changes in fiscal policy, but rather reacting to events and economic data.

A newsletter for the bravest and smartest leaders:

CEO Daily is your morning dossier on the news, trends and conversations business leaders need to know.
Register here.