Why Trump Won't Attempt to Dismiss Jay Powell: The True Explanation
What enables the Fed chair to dismiss Trump's pressure? The backing of Wall Street.
TroibNews 
Federal Reserve Chair Jerome Powell gained attention on Thursday for his direct response when asked if he would resign if President-elect Donald Trump requested it.
His answer: “No.”
This reply was notably confident given the current turbulent political climate. The reasoning behind Powell's assurance is particularly compelling.
Firstly, there's the legal framework: Fed board members can only be dismissed “for cause” — a stipulation that goes beyond mere policy disagreements.
Another important factor, especially regarding Trump, is the stock market.
The incoming president has significant flexibility to shape his administration's agenda, having solidified his influence within the Republican Party in a dramatic way just last week.
However, Trump's reliance on stock prices as a barometer of his success will act as a constraint on his impulses.
This was evident previously: Trump mulled over the idea of firing Powell after the Federal Reserve raised interest rates in December 2018, a move that unsettled markets already grappling with trade wars and decelerating growth. The prospect of Trump's intervention only heightened market distress.
To calm investors, then-Treasury Secretary Steven Mnuchin tweeted from his personal account on Christmas Eve a quote from Trump indicating that he didn’t believe he could fire the Fed chair.
Nevertheless, the uncertainty triggered one of the worst pre-pandemic stock market days during Trump's presidency, according to data from the benchmark Russell 3000 index provided by the London Stock Exchange Group. Following Powell's decision to remain, stocks rebounded on December 26, jumping approximately 5 percent.
Trump, likely wary of revisiting that fallout despite his ongoing criticisms of Powell, recently indicated he would allow the Fed chair to complete his term, which is set to end in May 2026.
“I do think it’s going to be a bit of a check” on the incoming president’s relationship with the Fed, noted Brian Gardner, who analyzes Washington affairs for financial firm Stifel. “The markets will not like interference by any administration, and once Trump sets the precedent, then every other subsequent administration is going to feel emboldened to walk through that door.”
How markets will influence Trump’s other policies remains less clear.
Stocks have reached record highs, reflecting investor enthusiasm over a Republican victory — signaling potential tax cuts and deregulation. However, Wall Street also harbors concerns about inflation risks driven by increased tariffs and a decrease in immigrant labor.
This anxiety contributes to the rising rates on long-term government debt, even as the central bank has begun lowering borrowing costs — signaling to Trump that increased political sway over the Fed might not ensure sustained low rates.
While the central bank steers market trends, it does not directly control them, despite investors’ close monitoring.
Trump’s scenario is expected to mirror this dynamic.
During his first term, the president often caused abrupt market fluctuations with unexpected statements, although most volatility proved to be short-lived. He frequently sought to calm investors, such as when market anxiety over trade disputes prompted tweets about possible agreements with China.
However, strategists I spoke with suggest that Trump may have less capacity to pacify investors this time around, depending on how aggressively he pursues his policy agenda.
“The landscape is just totally different,” stated Kevin Gordon, senior investment strategist at Charles Schwab.
Despite general economic strength, various risks loom for future policymakers. The Fed continues to try cooling inflation without hindering job growth, and sectors sensitive to trade, like manufacturing and housing, have only slowly recovered from the pandemic amid high rates. Additionally, elevated government debt levels may limit Congress’ ability to widen fiscal deficits.
These factors present a formula for market anxiety in response to governmental policies.
The degree to which Trump confronts Powell will likely hinge on the stock market's performance. It's noteworthy that when Trump previously considered replacing the Fed chair, it was amid a stock market selloff triggered by Powell's rate increase.
Currently, the market continues to reach new highs, with the S&P 500 gaining over 26 percent this year — a favorable setting for Trump.
In 2020, Powell was instrumental in averting a financial crisis at the onset of Covid and played a key role in reversing the market downturn, which pleased the president.
“I have been critical, but in many ways I call him my ‘MIP,’” Trump remarked to reporters in May of that year. “Do you know what an MIP is? Most improved player. It’s called the Most Improved Player award.”
Sanya Singh contributed to this report for TROIB News
His answer: “No.”
This reply was notably confident given the current turbulent political climate. The reasoning behind Powell's assurance is particularly compelling.
Firstly, there's the legal framework: Fed board members can only be dismissed “for cause” — a stipulation that goes beyond mere policy disagreements.
Another important factor, especially regarding Trump, is the stock market.
The incoming president has significant flexibility to shape his administration's agenda, having solidified his influence within the Republican Party in a dramatic way just last week.
However, Trump's reliance on stock prices as a barometer of his success will act as a constraint on his impulses.
This was evident previously: Trump mulled over the idea of firing Powell after the Federal Reserve raised interest rates in December 2018, a move that unsettled markets already grappling with trade wars and decelerating growth. The prospect of Trump's intervention only heightened market distress.
To calm investors, then-Treasury Secretary Steven Mnuchin tweeted from his personal account on Christmas Eve a quote from Trump indicating that he didn’t believe he could fire the Fed chair.
Nevertheless, the uncertainty triggered one of the worst pre-pandemic stock market days during Trump's presidency, according to data from the benchmark Russell 3000 index provided by the London Stock Exchange Group. Following Powell's decision to remain, stocks rebounded on December 26, jumping approximately 5 percent.
Trump, likely wary of revisiting that fallout despite his ongoing criticisms of Powell, recently indicated he would allow the Fed chair to complete his term, which is set to end in May 2026.
“I do think it’s going to be a bit of a check” on the incoming president’s relationship with the Fed, noted Brian Gardner, who analyzes Washington affairs for financial firm Stifel. “The markets will not like interference by any administration, and once Trump sets the precedent, then every other subsequent administration is going to feel emboldened to walk through that door.”
How markets will influence Trump’s other policies remains less clear.
Stocks have reached record highs, reflecting investor enthusiasm over a Republican victory — signaling potential tax cuts and deregulation. However, Wall Street also harbors concerns about inflation risks driven by increased tariffs and a decrease in immigrant labor.
This anxiety contributes to the rising rates on long-term government debt, even as the central bank has begun lowering borrowing costs — signaling to Trump that increased political sway over the Fed might not ensure sustained low rates.
While the central bank steers market trends, it does not directly control them, despite investors’ close monitoring.
Trump’s scenario is expected to mirror this dynamic.
During his first term, the president often caused abrupt market fluctuations with unexpected statements, although most volatility proved to be short-lived. He frequently sought to calm investors, such as when market anxiety over trade disputes prompted tweets about possible agreements with China.
However, strategists I spoke with suggest that Trump may have less capacity to pacify investors this time around, depending on how aggressively he pursues his policy agenda.
“The landscape is just totally different,” stated Kevin Gordon, senior investment strategist at Charles Schwab.
Despite general economic strength, various risks loom for future policymakers. The Fed continues to try cooling inflation without hindering job growth, and sectors sensitive to trade, like manufacturing and housing, have only slowly recovered from the pandemic amid high rates. Additionally, elevated government debt levels may limit Congress’ ability to widen fiscal deficits.
These factors present a formula for market anxiety in response to governmental policies.
The degree to which Trump confronts Powell will likely hinge on the stock market's performance. It's noteworthy that when Trump previously considered replacing the Fed chair, it was amid a stock market selloff triggered by Powell's rate increase.
Currently, the market continues to reach new highs, with the S&P 500 gaining over 26 percent this year — a favorable setting for Trump.
In 2020, Powell was instrumental in averting a financial crisis at the onset of Covid and played a key role in reversing the market downturn, which pleased the president.
“I have been critical, but in many ways I call him my ‘MIP,’” Trump remarked to reporters in May of that year. “Do you know what an MIP is? Most improved player. It’s called the Most Improved Player award.”
Sanya Singh contributed to this report for TROIB News
