Trump Quietly Overthrows Powell? The Dollar Plummets Because the Fed Chairman is "In the Shadows"

The dollar plummeted on Thursday after The Wall Street Journal reported that Trump may reveal his next Federal Reserve chair nominee much sooner than expected. Traders in Asia reacted immediately as the US dollar fell against all major currencies. This news came after Trump expressed his dissatisfaction with how current Fed Chairman Jerome Powell is handling interest rates, believing he has been too slow to cut rates.

Trump is currently considering making an announcement as early as September or October, while Powell's term will not end until May 2026. According to the Journal, the names being put forward in the White House include Kevin Warsh, former Fed governor, and Kevin Hassett, director of the National Economic Council. Both of these men had previous relationships with Trump's team, and the idea of appointing a successor too early has shaken investors' confidence. Trump told reporters on Wednesday that he is currently considering "three or four" potential replacements. He publicly criticized Powell's recent decision to keep interest rates unchanged, saying that this keeps the government's borrowing costs high and harms growth. Earlier this month, he mentioned that new names would soon appear. The White House Sends Mixed Signals Rodrigo Catril, a strategist at the National Australia Bank in Sydney, said an early announcement from Trump could "increase pressure" on Powell long before his term ends. "We could have a Fed chairman in the shadows before May of next year," Catril said, adding that this kind of political pressure could push the dollar lower in the coming weeks. When asked about Trump's intentions, the White House responded that the Fed should focus on monetary policy aimed at growth. For his part, Powell asserted that politics would not influence the Fed's choices. "If we make a mistake here, everyone will pay the price... for a long time," Powell said to lawmakers during the Senate hearing. He added that interest rate cuts could still take place by the end of this year, but noted that the Fed would take a "cautious approach." Regarding the timeline, Larry Bessent, the current Secretary of the Treasury, previously stated that interviews for the next chair position would not begin until September. However, that schedule may not remain unchanged. The independence of the Fed has been protected since the 1970s, when President Nixon pressured the central bank to lower interest rates before his re-election. This led to devastating inflation that took many years to rectify. Trump Targets Warsh, Bessent, and Malpass for Leadership Positions Trump has been eyeing Warsh for a while. He talked to him earlier this year about the possibility of replacing Powell before his term ends. Warsh was also interviewed by Trump last fall for the position of Secretary of the Treasury. At a closed event in Boston this month, Warsh told a group of financial experts that, "I wouldn't be surprised if the president nominates earlier than usual, just to... try to make an important position seem more important or something like that." However, there are still many concerns. Some of Trump's aides worry that Warsh could be an eccentric. He has long been seen as a hawkish policymaker, focusing more on combating inflation than on promoting jobs. When asked about that brand in Boston, Warsh said, "My fatal flaw is that I say what I believe. If the president wants a weak person, I don’t think I would get that job." He also experimented with zero interest rates: "When everything is free, when interest rates are zero, that leads to very bad economic outcomes." Warsh also praised Kazuo Ueda, the head of the Bank of Japan, saying that he is "the most talented central banker on the planet right now." Then there is Hassett, who is said to have told people that he was not interested in taking this job. That created an opportunity for Bessent. Although he says he is committed to his current position, people familiar with both him and Trump say that Bessent has not ruled out that possibility yet. Speaking before Congress earlier this month, Bessent said, "I am very happy to do what President Trump wants me to do." That loyalty is very important—Trump barely knew Powell when he chose him in 2018 and now considers that decision a mistake. He is determined not to repeat that. Trump has also spoken with aides about David Malpass, who headed the World Bank during his first term. Malpass recently supported rate cuts and criticized the Fed's internal models in an op-ed in the Journal. These views align with Trump. However, in recent private dinners and lunches, Trump is said to have expressed doubts about Malpass's television appeal, suggesting that his appearance may not be suitable for the role.