Trump Should Let Powell Finish His Term

Jerome Powell should finish his term as Federal Reserve chair, even if President Donald Trump dislikes every remaining interest-rate decision. On July 16, Trump said of firing Powell,^[1] “I think it’s highly unlikely, unless he has to leave for fraud.” In the same remarks, the president supplied his policy demand: “You know what he has to do? Lower interest rates.” That is an instruction to produce a result, regardless of the evidence. I want a central bank that can be wrong, explain itself and change course without having to satisfy that instruction.

The distinction between a policy dispute and misconduct matters because the statute provides 14-year terms for governors, with removal for cause, and a separate four-year designation as chair with Senate consent.^[2] The Supreme Court’s May 22 interim order in Trump v. Wilcox^[3] treated the Fed as structurally distinct from the agencies involved in that case. Meanwhile, CNBC reported on July 14 that Powell had requested an inspector general review of the headquarters renovation.^[4] That is a way to establish facts about the project. Trump’s reference to fraud is his suggestion, not a finding against Powell. Investigate the spending on its merits; a demand for cheaper money supplies no evidence about construction.

In the 16-country comparison by Alberto Alesina and Lawrence Summers, reproduced in a 2006 Cleveland Fed working paper,^[5] Germany and Switzerland had the top independence score of 4 and average annual inflation of 3.0% and 3.2% from 1955 to 1988. New Zealand scored 1 and averaged 7.6%. The United States scored 3.5, yet its 4.1% inflation matched Belgium’s, with a score of 2. Formal insulation was no guarantee against pressure: economist Burton Abrams^[6] documented Richard Nixon pressing Fed Chair Arthur Burns for expansionary policy before the 1972 election. The countries differed in more than central bank law: a strong preference for price stability could support both institutional independence and lower inflation.

Central bank independence and average inflation, 16 countries, 1955 to 1988

A lower policy rate does not guarantee a cheaper mortgage. The Fed cut its target by 1 percentage point across the last three meetings of 2024.^[7] Over roughly the same period, Freddie Mac’s^[8] average 30-year fixed mortgage rate rose from 6.09% on September 19 to 7.04% on January 16, 2025. As Ben Bernanke explained in his 2013 account of long-term rates,^[9] a longer-term yield incorporates expected inflation, expected short-term real rates and a term premium. If investors interpreted a forced departure as weakening the commitment to price stability, they could demand more compensation even as the policy rate fell. The risk is paying for a visibly cheaper policy rate with a less credible promise about inflation.

Trump’s own standard has changed. In an interview published on July 16, 2024, he warned against cutting rates before the election,^[10] according to The Hill’s account of his Bloomberg interview. A year later, CNBC reported that he alleged the 2024 cuts were intended to help Kamala Harris while seeking reductions of up to 3 percentage points himself.^[1] The direction he opposed before the election is the direction he now demands. The Fed’s September 18 explanation for its first cut cited progress on inflation and the balance of risks.^[11] Judge that explanation against the economic record. The party in the White House cannot tell us whether money is too tight.

Powell’s critics do not have to invent a mistake. In August 2021, he argued that elevated inflation readings were likely to prove temporary.^[12] The latest consumer price reading then showed a 5.4% increase over the 12 months through July.^[13] By November, that rate was 6.8%; the Fed nevertheless kept its target at 0% to 0.25% in December.^[14] The transitory call was wrong. Consumer inflation reached 9.1% in June 2022 before falling to 2.7% in June 2025.^[13] Those are all-items CPI readings, calculated from the not-seasonally-adjusted index. The subsequent decline belongs in Powell’s record as surely as the earlier error does.

U.S. consumer inflation and the federal funds target range, 2021 to 2025

That decline has come with June unemployment at 4.1%,^[17] according to the July 3 jobs report. On the separate personal consumption expenditures measure, May inflation was 2.3% over 12 months, or 2.7% excluding food and energy.^[18] These figures give the argument for easing a fair hearing: inflation is much closer to the Fed’s goal. But with unemployment low and underlying inflation still above 2%, I can defend continuing the 4.25% to 4.5% target retained on June 18.^[19] Waiting risks keeping borrowing unnecessarily expensive; cutting too quickly risks giving back the progress on prices. Whether to cut now, and by how much, turns on that evidence. A bad call in 2021 does not answer those questions for July 2025.

A defender of binding rules has a harder question: why should the officials who misread inflation keep the discretion to misread it again? Insulating so much power from elections also makes policy errors harder for voters to correct. Milton Friedman’s 1968 case for steady, publicly announced monetary growth^[20] put the objection plainly: “Too late and too much has been the general practice.” A binding standard would let the public judge performance without taking the policymaker’s word for it. It would constrain both the central bank and the president. Even the Fed’s February 2025 report shows its benchmark interest-rate rules calling for tighter policy as inflation picked up.^[7] That retrospective exercise deserves an answer from anyone defending discretion. I share the suspicion of officials who mistake the power to act for the knowledge to act well.

But presidential control is not a money-growth rule. It transfers discretion rather than limiting it. An instruction to lower rates supplies neither a stable monetary standard nor the conditions under which rates should rise. A binding formula also leaves choices upstream: Bernanke’s 2006 review found that money growth’s relationship to inflation and nominal output had been unstable at times.^[21] Many interest-rate rules depend on estimates of longer-run unemployment and the neutral real interest rate, which the Fed’s February report calls difficult to measure and liable to change.^[7] Someone still has to choose the rule and estimate its inputs. Making the formula binding could move political pressure to those estimates. The report already publishes rules as benchmarks; I would require the chair to explain material departures from them at each semiannual testimony.

There is a cost to this position: an insulated Fed can keep making a mistake after outsiders have recognized it. Waiting for Powell’s term to end on May 15, 2026,^[22] means accepting roughly 10 more months of that risk. Replacing him would not itself guarantee a different rate: the June committee statement records 12 voting members,^[19] including the chair. Against the chance of changing those remaining decisions stands a precedent that a successor from either party could use against the next chair. The restraint Trump dislikes today could protect a chair he chooses tomorrow. Sometimes the most powerful thing a president can do is nothing.