Here’s the Surprise Move Trump Should Make With Jerome Powell
As the president once again lambastes the Fed Chair, there’s one action he should take — and stocks would love it.
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To say that President Donald Trump has had unkind words for Federal Reserve Chair Jerome Powell would be a dramatic understatement. Among the sea of barbs Trump has unleashed on Powell, one comment in particular on Wednesday stood out.
“He’s a terrible Fed chair. I’m surprised he was appointed,” said Trump. “I’m surprised, frankly, that Biden put him in and extended him.”
It was Trump himself that first nominated Powell for Fed Chairman in 2017. In 2021, former President Joe Biden renominated Powell to the position.
The Market Checks In
Investors, already shaken by rumors that Trump would soon fire Powell, made their displeasure with the comments clear. The S&P 500 plunged by about 50 points in less than an hour (shaded yellow).
Stocks then quickly recovered when Trump denied that he was planning to fire Powell, indicating that any changes would likely happen when the Fed Chair’s term expires in eight months.
Careful What You Wish For
That market reaction was telling. Investors were clearly shaken at the thought of losing Powell.
Those who support Powell’s eventual dismissal should be careful what they wish for. In my opinion, Powell’s insistence on maintaining the Fed funds rate at current levels is exactly what Trump needs right now.
The market is already weighing in on Trump’s tax cuts and pro-growth policies. The S&P 500 and the Nasdaq Composite, the two most important U.S. stock market barometers, have both hit a series of all-time highs in recent weeks.
Without an independent Fed chair keeping rates steady to balance out anticipated economic growth, Trump risks re-igniting inflation. This is the last thing that consumers need, as they are still reeling from the worst bout of inflation in the past 40 years.
While the rate of inflation has moderated, it seems unlikely that prices will decline from their lofty levels. Another bout with inflation could cost Trump dearly in the popularity department, even among his biggest supporters.
Here’s What Trump Should Do
If Trump wants to maintain growth without igniting inflation, there’s one action he should take.
Trump should renominate Powell for another term as Fed Chair.
Hear me out. After presiding over this generation’s worst bout of inflation, Powell isn’t about to make that mistake again. He’ll err on the side of caution.
In the past, Powell has praised former Fed Chair Paul Volker, who boosted the Fed funds rate to 20% in 1981. “He had the courage to do what he thought was the right thing,” said Powell of Volcker.
Stocks would love this move. It would prove that Trump is willing to work with someone he opposes, something all politicians must do. It would also be an indication that fighting inflation is a top priority of the Trump administration.
Powell is the yin to Trump’s yang. Trump may not like him, but Powell is the best candidate to keep inflation in check. Ironically, this would give Trump’s economic agenda a chance to succeed.
