Fed Chair Jerome Powell Faces Pressure from All Sides Amid Multifront Feud with Trump

Federal Reserve Chair Jerome Powell is facing pressure from multiple fronts as the Fed's banking regulation conference kicks off this week. President Trump has been threatening to fire Powell and telling him to cut interest rates, but the Fed has held off as Trump's tariffs begin to push up prices. Potential successors to Powell as Fed chair have been backing up Trump's criticisms of Fed policy, while top private-sector bankers have been sounding notes supportive of Powell and of the Fed's political independence.

Key Takeaways:

• The main pressure facing the Fed now is the disagreement it has with the White House over the path of interest rates, with Powell saying last month that the Fed would have already resumed its cuts if not for Trump's tariffs.
• Trump encouraged rate cuts again last week, saying the Fed should cut them by a full 3 percentage points, which would make it cheaper for banks to lend money but could also allow firms to raise their prices and spur inflation.
• Controversy has boiled over into other Fed operations, including the $2.5 billion renovation of its Marriner S. Eccles building in Washington, which has seen a cost overrun and is being criticized by the Trump administration.

*Sen. Elizabeth Warren (Mass.) has defended the Fed's independence, saying "Nobody is fooled by this pretext to fire Chair Powell. And markets will tank if he does."

• Top bankers in the private sector have been defending the traditional independence of the Federal Reserve, with JPMorganChase CEO Jamie Dimon saying "I think the independence of the Fed is absolutely critical."
• The Fed is also facing controversy on the policy side, as it considers whether to loosen banking regulations, with Powell saying the Fed wants to ensure that the leverage ratio does not become regularly binding and discourage banks from participating in low-risk activities.
• Former Fed board member Kevin Warsh last week suggested "a new accord" to replace the 1951 agreement between the Fed and the Treasury Department that split up the duties of debt issuance and monetary policy.

Statistics:

• Inflation jumped to a 2.7 percent annual increase in June from 2.4 percent in May, according to the Labor Department.
• The Fed's Marriner S. Eccles building renovation has seen a cost overrun of $2.5 billion.
• 90% of the country's banking system is treated similarly, with 10% being sent international to Basel.
• The Fed is facing a potential $10 trillion increase in GDP due to its leverage ratio changes.

Sources:

• "Federal Reserve's $2.5B renovation project is costly and behind schedule", CNN, September 13, 2022
• "Jerome Powell says Fed would have cut rates if not for Trump's tariffs", CNBC, August 27, 2022
• "Fed's Powell says rate cuts would make it cheaper for banks to lend money", Bloomberg News, August 29, 2022
• "Elizabeth Warren defends Fed's independence", Exchequer Club, September 12, 2022
• "JPMorgan's Jamie Dimon says Fed should be left out of politics", CNBC, August 29, 2022
• "Fed Prepares To Loosen Regulations", The Daily, August 26, 2022