President Trump thrust Federal Reserve Chair Jerome Powell into controversy on July 16, first telling Republican lawmakers he would "dismiss Powell soon" before reversing course hours later. The President clarified he would only consider removal if Powell were implicated in fraud related to the $2.5 billion Federal Reserve headquarters renovation project.
Financial markets convulsed during this political drama, with U.S. equities plunging, Treasury yields spiking, and the dollar weakening while gold surged. Volatility intensified following reports that Trump had drafted a termination letter. Markets rapidly recovered losses when the President denied imminent action, calling the scenario "highly unlikely."
Trump's longstanding criticism of Powell centers on monetary policy disagreements. Since appointing him in 2018, Trump has repeatedly accused Powell of moving "too slowly" on interest rate cuts. The President recently pushed for aggressive reductions of up to 300 basis points at the upcoming FOMC meeting, far exceeding market expectations. Powell maintains the current federal funds rate at 4.25%-4.5%, emphasizing data-dependent decision-making.
Legal constraints complicate any dismissal attempt. Recent Supreme Court rulings affirm that presidents lack authority to remove Fed chairs without "just cause." Powell himself has stated his position enjoys legal protection against policy-based termination.
Republican leaders expressed skepticism about Powell's removal. House Financial Services Committee Chairman French Hill stated, "I don't believe Trump will fire Powell," while Treasury Secretary Steven Mnuchin deemed the scenario improbable. Contrastingly, Representative Anna Paulina Luna claimed on social media: "I'm 99% sure the firing is happening," citing reliable sources.
Market indices ultimately closed higher despite the turbulence, with the Nasdaq hitting a record high. The Dow rose 231.49 points (0.53%) to 44,254.78, while the S&P 500 gained 19.94 points (0.32%) to 6,263.70. Spot gold closed up 0.67% as the dollar index declined 0.35%.
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