Tensions between the White House and the Federal Reserve flared again this week after President Donald Trump publicly threatened to fire Treasury Secretary Scott Bessent if he failed to pressure Fed Chairman Jerome Powell into cutting interest rates more aggressively.
Speaking at the U.S.-Saudi Investment Forum in Washington on November 19, Trump criticized persistently high borrowing costs, claiming they were weighing on the economy. He bluntly told attendees that if Bessent did not act quickly to push Powell toward rate cuts, he would "fire him."
White House Response
The remarks immediately raised concerns about political interference in monetary policy. The White House sought to calm markets, with spokesperson Desai stressing that the administration "fully trusts" Bessent’s leadership at Treasury. At the same time, Trump revealed that the government is already considering candidates to succeed Powell, whose term runs until May 2026.
Trump recounted a conversation with Bessent, saying the Treasury Secretary preferred Powell to finish his term, but Trump himself "really wants to replace" him sooner. Commerce Secretary Howard Lutnick was described as even more hardline on the issue.
Fed Minutes Show Division
The controversy came just hours before the Fed released minutes from its October meeting, which showed officials voted to lower rates by 25 basis points, bringing the target range to 3.75%–4%. However, the minutes revealed sharp divisions over whether further cuts are warranted this year.
- "Many" officials argued no additional cuts are needed in 2025.
- Market expectations for a December cut fell to 33%, down from higher levels earlier in the month.
- Officials cited a slowing labor market and limited progress on inflation as reasons for caution.
Despite the debate, the Federal Open Market Committee (FOMC) unanimously agreed to halt balance sheet reduction in December 2025, a move intended to support financial market liquidity.
Trump’s Longstanding Criticism
Trump has repeatedly attacked Powell for being too slow to cut rates. Just a day earlier, he told reporters at the White House that "someone has been preventing me from firing Powell," underscoring the ongoing tension between the executive branch and the central bank.
His latest comments suggest the administration is willing to escalate pressure on both Powell and Bessent, raising questions about the Fed’s independence at a time when monetary policy decisions remain finely balanced.
Market Implications
The clash highlights the uncertainty facing investors as they weigh the Fed’s next steps. While liquidity support from halting balance sheet reduction is seen as a positive, the lack of consensus on rate cuts leaves markets vulnerable to political rhetoric.
For now, the Fed’s cautious stance contrasts sharply with Trump’s demands for faster and deeper cuts, setting up a potential showdown that could reverberate across bond and equity markets heading into 2026.