Trump Is Laying the Groundwork to Blame Powell for Any Downturn

Wall Street Journal
By Nick Timiraos
April 21, 2025 9:00 pm ET

President Trump is signaling that he will blame the Federal Reserve for any economic weakness that results from his trade war if the central bank doesn’t cut interest rates soon.

In the process, he might also be seeking to delegitimize the historically independent institution in a way that could undermine its effectiveness.

In a social-media post on Monday, Trump repeated last week’s demand that the Fed reduce interest rates now. “There is virtually no inflation,” he said, blasting Fed Chair Jerome Powell as “Mr. Too Late” and “a major loser.”

He also accused the central bank of lowering interest rates last fall to influence the 2024 election. “Powell has always been ‘To [sic] Late,’ except when it came to the Election period when he lowered in order to help Sleepy Joe Biden, later Kamala, get elected,” he wrote.

His Truth Social post developed one of Trump’s longstanding beliefs about the Fed: that it should be more responsive to what the president wants. His statement and those of other advisers allege that the institution, far from being above Beltway politics, has already become politicized.

By Trump’s account, Powell worked to help Biden during his term and is now unwilling to provide the same support to his own second-term agenda. He put no weight on the fact Trump appointed Powell to the role in 2018, that Powell worked closely with his administration in 2020 to provide unprecedented support when the pandemic hit, or that the Fed was prepared to saddle Biden with a recession in 2023 by raising interest rates sharply to bring inflation down.

Powell and his colleagues have said that the central bank doesn’t take political considerations into account when setting policy. Powell has spent much of his seven years as chair trying to shore up the institution’s apolitical DNA after bruising political attacks following the 2008 global financial crisis.

“We will only make our decisions based on…our best analysis of the data,” Powell said last week. “That’s the only thing we’re ever going to do.”

Monday’s presidential broadside focused on one episode in particular. In September, after holding interest rates at a two-decade high of around 5.3% for more than a year, the Fed cut rates by a half percentage point amid concerns that the labor market was weakening while inflation was falling. After Trump won the election in early November, the Fed went on to cut rates twice more by a quarter percentage point each time.

Many Wall Street economists see the Fed’s decision to cut rates then and hold rates steady for now as the logical response to actual and expected economic developments, not politics.

Some analysts said the president’s attacks on the Fed simply represent an attempt to scapegoat the central bank for impending economic weakness. “It’s tempting to want somebody else to ride to the rescue, or at least have someone else to blame,” said former Sen. Phil Gramm, a Texas Republican.

By arguing that the economy didn’t need lower rates last year but requires even lower rates now, Trump and his advisers haven’t adopted an intellectually consistent argument for easier monetary policy, said Neil Dutta, head of economic research at Renaissance Macro Research.

“The Fed didn’t cut last year to help Biden. They cut to help the labor market, which was, in fact, slowing down” as a result of high interest rates, said Dutta. He predicted the economy was likely to enter a recession this quarter because of Trump’s unpredictable trade announcements, about which the Fed can’t do much.

“Once the confidence genie is out of the bottle, it’s really tough to put it back in,” he said.

Central bankers elsewhere, including in Europe, are freer to cut rates because their governments haven’t risked higher inflation by raising tariffs and can focus on cushioning the hit to growth, Dutta said.

It is unclear whether Trump will go beyond haranguing Powell to try to fire him. Powell would likely fight such an action in court. Investor faith in the U.S. could also be shaken. Monday’s slump in stocks and the dollar and rise in bond yields might be a foretaste.

That prospect has some Republicans warning Trump against threatening to oust the Fed leader.

“The president has already created tremendous uncertainty concerning international trade policy, forcing every business in America to figure out what his policies are,” said Gramm, who chaired the Senate Banking Committee from 1999 to 2001. “Suggesting that Powell could be removed through presidential action creates a whole new uncertainty.”

Even if Trump doesn’t ultimately oust Powell, his efforts to discredit him could do lasting harm to an institution that has long sought to remain apolitical and technocratic.

“This is a real disaster” for the Fed, said Peter Conti-Brown, a Fed historian at the University of Pennsylvania. “The very integrity and buy-in on a bipartisan basis that the Federal Reserve is going to be a straight shooter is what gives the Fed its authority, its maneuverability.”

The president’s latest attacks differ from 2018-19, when he also badgered Powell to stop raising rates and, later, to cut them, said Conti-Brown. “What the delegitimization campaign in 2018 did was to try to fan the flames for a pretty small Trumpian base within the party,” said Conti-Brown. “That base is now dominant within the party,” and Senate Republicans might be less willing to defend the Fed against Trump.

Second, inflation is a bigger worry today. It is likely to reach 2.3% in March, using the Fed’s preferred gauge—close to the four-year low of 2.1% recorded last September. But economists expect it to rise this summer if Trump’s announced tariffs stay in place. That raises the stakes if the Fed acquiesces to Trump’s demands.

Trump’s critique on Monday didn’t come out of the blue. His advisers have been honing this line of attack for months, arguing that Fed decisions for the past four years weren’t the product of difficult data-driven judgments, but politics.

Kevin Hassett, director of the White House National Economic Council, noted to reporters on Friday that Fed officials opted not to appear on TV and at IMF meetings to “warn” about what he alleged was “the terrible inflation from the obvious runaway spending from Joe Biden” in 2021.

Michael Faulkender, now deputy Treasury secretary, last summer said in an interview that he believed Powell let inflation become a problem in 2021 because he was “more interested in getting nominated for a second term than he did in doing his job.”

Stephen Miran, who is currently chairman of the White House Council of Economic Advisers, said last fall that the Fed’s decision to lower rates to avoid more pronounced labor-market weakness risked years of inflation running closer to 3% rather than 2%.

Advocates for lower rates “think…that 3% is no big deal,” Miran wrote on his social-media account last September, when he was a private-sector analyst. “I think that undermines our democracy, the rule of law, and our institutions given Congress legislated ‘stable prices.’”