Trump says Fed chair should be fired for fighting his tariffs’ higher prices

(Originally published April 18 in “What in the World“) Trump wants to fire his central banker and replace him with a more obedient one. If his recent policy choices are any guide, he’s just about dumb enough to do it.

It was Trump who nominated Jerome Powell to his first term as Federal Reserve chair in 2017. But even then, Trump wasn’t happy with Powell, lambasting his efforts to quell inflation by raising interest rates. This time around, Trump’s unhappy with Powell for failing to cut rates, presumably in response to the economic damage Trump’s own tariffs are creating.

After Powell on Wednesday repeated warnings that Trump’s policies were raising the risk of stagflation, Trump posted “Powell’s termination cannot come fast enough!” and blasted him for failing to cut rates. Later, Trump told reporters he was unhappy with Powell and assured them he had the legal authority to fire him before Powell’s second term ends next May.

According to The Wall Street Journal, Trump has even gone so far as to talk to former Fed governor Kevin Warsh about potentially stepping in to replace Powell. Warsh was nominated to the Fed’s board of governors back in 2006 by former President George W. Bush and is a pal of Trump’s Treasury Secretary Scott Bessent.

Whether or not Trump has the legal authority to fire Powell is the subject of an important, ongoing court case involving Trump’s dismissal of a presidential appointee at the National Labor Relations Board.

But firing your ostensibly independent central banker because you don’t like his interest-rate policy is bad financial juju. Investors tend to freak out when they fear politics have precedence in setting a country’s monetary policy. And Trump’s reckless trade policies have already sent investors rushing for the exits, selling U.S. government stocks, bonds, and the U.S. dollar.

Fortunately, both Warsh and Bessent, according to the Journal, have managed to talk Trump out of firing Powell and instead just let his term run out. Then, Trump can nominate a puppet to help him torpedo the Fed’s independence.

He’s already laid some of the groundwork, beyond just trying to overturn legal precedent to fire the Fed chair. As explained in this space last month:

“[In February, Trump] issued an executive order demanding that independent federal agencies submit any regulatory changes to the White House for review. His order exempted the Fed’s monetary policy decisions, but some experts voiced concern that it might only be a matter of time before he used the precedent to extend his authority to monetary policy, too.

He fired another shot across the Fed’s bow [in early March] by establishing a strategic bitcoin reserve. Trump’s executive order will set aside up to $17 billion worth of Bitcoin and other digital currencies … seized in criminal investigations. But the order also directs government agencies to buy Bitcoin and other crypto-crap, suggesting that taxpayer funds will eventually be used to purchase more.

Never mind the efficacy of these cryptocurrencies as stores of value (negligible), or their primary function as a means of exchange between criminals, or as a Ponzi scheme perpetrated by their founders—including Trump with his own digital coin, TRUMP. One of the original arguments for creating Bitcoin and other digital currencies was to provide an inflation-proof alternative to fiat currencies whose supply is controlled by central banks like the Federal Reserve.

The Fed controls the U.S. money supply using interest rates and open-market operations, trading bonds and repurchase agreements and whatnot. People can obviously use other country’s currencies if they don’t like U.S. interest rates or Fed policies, or don’t believe in the fundamental safety of the dollar as a store of value. So far, though, no other currency has managed to rival the U.S. dollar as a stable and secure medium of exchange, though Beijing has long been plugging for its renminbi.

Of course, like all central banks, the Fed also holds other nations’ currencies in its reserves, which it accumulates in the course of international trade. And to some extent, central banks can buy or sell other nations’ currencies to control the rate of exchange between those currencies and their own. China, which is perhaps the best example, has followed Japan’s footsteps by amassing vast reserves of U.S dollars collected when exporters bring them home. By storing them up instead of trading them back in, China can keep the renminbi’s value artificially low and its exports cheap. What does it do with all those greenbacks? Like Japan and other nations with big trade surpluses with the U.S., it uses a lot of them to buy U.S. Treasuries, earning interest by lending money to the U.S. government and, in so doing, provides a reasonably steady source of demand that helps keep U.S. borrowing costs lower than they might be given Washington’s perennial profligacy. (NB: In the past year, both China and Japan have been scaling back their U.S. Treasury holdings.)

It isn’t clear yet, however, whether the Fed will also control Trump’s new crypto-reserve. So far, though, Trump appears to be positioning it as a strategic investment: as crypto prices rise, the U.S. will profit and use its gains to pay bills and pay down its debt. In that sense, the crypto-reserve would function largely like the U.S. strategic oil reserve: one the president can use to dampen the price of oil and gasoline in the U.S.

The problem is that the crypto-reserve wouldn’t be a way to control the price of cryptocurrencies. It would be a way to influence the cost of dollars. If the Fed doesn’t control this sack of digital coprolite, it would potentially give the White House a powerful tool to confound the Fed’s control of the money supply and interest rates. If the President feels rates are too high, he can simply direct his crypto-czar to use taxpayer funds to buy more crypto, thereby releasing dollars into the economy. It’s difficult to imagine a scenario in which a politician would favor higher borrowing costs, but the opposite is also true: if the president felt rates were too low, he can disgorge the nation’s crypto, thereby sucking up dollars, reducing the money supply, and pushing up real interest rates. In other words, the Fed would lose its independent control over the money supply, interest rates, and its ability to influence the value of the U.S. dollar.

To be sure, the crypto-reserve’s starting size of $17 billion is chump change next to the dollars in circulation. When the Fed wanted to push interest rates below zero after the global financial crisis, it ended up buying $4.5 trillion in bonds and other assets with dollars it created out of thin air. Trump can’t create more Bitcoin or Ether and so devalue them. But he can use his still-unchallenged violation of Congressional power over government spending to buy them.

Powell isn’t alone in worrying about stagflation. Peterson Institute for International Economics President Adam Posen, who has argued that Trump’s tariffs actually hurt the U.S. more than they hurt China, puts the odds of stagflation at 65%. It isn’t like Powell doesn’t see Trump’s policies choking economic growth. The Commerce Dept.’s Census Bureau on Thursday released data showing that U.S. housing starts in the first quarter of 2025 fell 1%, with single-family housing starts falling almost 5%.

Trump’s administration isn’t stopping to take a breath in its campaign against American prosperity. On Thursday, Interior Secretary Doug Burgum said his department was demanding a halt to construction of Empire Wind, a multibillion-dollar wind power project off New York’s coast that was due to start producing electricity next year.