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**APRIL 11, 2025**

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Kuttner on TAP

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**** Could Jay Powell Restrain Trump?

Trump's destructive tariff policies could well require emergency
Fed intervention that Powell doesn't want. Will the Fed chair have the nerve to challenge Trump?

Not surprisingly, Trump's tariff "pause" has failed to reassure either trading partners or financial markets. His comment to a Republican gathering that other countries are "kissing my ass, they are dying to make a deal" has backfired.

Other national leaders, mistrusting Trump's capacity for keeping his word (and his sanity) are not in fact behaving like, say, the craven presidents of Harvard and Columbia Universities. They see Trump's capitulation as a sign of weakness and are likely to drive tougher bargains. The escalating trade war with China adds to the instability.

As financial markets continue to gyrate, the role of one key player, Fed Chair Jay Powell, is worth a closer look.

Trump has been pressuring Powell to cut interest rates. But that would only serve to enable Trump's trade war by cushioning its economic impact. Powell has been firm in asserting his
independence on monetary policy. As Trump's tariffs result in higher inflation, it's unlikely that Powell will abandon his inflation targets. (Sure enough, the University of Michigan survey of inflation expectations just came in at 6.7 percent [link removed], the highest level since 1981.)

After his election, Trump suggested that Powell might be replaced. But Powell firmly shut that down as "not permitted under the law [link removed]."

Apart from easing interest rates, there is one urgent situation in which the Fed would be compelled to act. The market for U.S. Treasury securities has been in turmoil because various complex plays involving leverage as high as 100-to-1 have resulted in forced sales to produce collateral. These plays include basis trades and swap spread trades. For civilians, here is an explainer piece in the


**Financial Times** [link removed].

According to Adam Tooze, who wrote a book, Shutdown [link removed], about the financial impact of the COVID crisis, "To soak up panicked selling and to put a floor under the Treasury market, the Fed bought $1.6 trillion in a month."

****The

**Financial Times** reports [link removed] that "there's been a similar 'doom loop' of margin calls, liquidation and falling prices in recent days."

The 2020 financial crash was the result of COVID. It was nobody's fault. By contrast, the April 2025 crash is emphatically Trump's fault. Powell resents being put in the position of having to deliver bailouts because of dumb, gratuitous policies.

Emergency Fed actions require close coordination with the Treasury. Trump's Treasury secretary, Scott Bessent, is the best of a bad lot. It was Bessent
who helped persuade Trump to suspend his tariffs for 90 days. Powell might suggest to Bessent that his boss will get more help from the Fed if he stops behaving like an economic lunatic.

On the other hand, the leverage might run the other way. Trump is so willing to play roulette with the economy that he might demand rate cuts as a condition of working with the Fed on emergency liquidity.

[link removed]

CONCEIVABLY, TRUMP COULD TRY to fire Powell. But Congress clearly created the Fed as an independent institution beyond direct presidential control. The question of whether a president can replace a Fed governor before the end of a fixed term has never been tested in court, because no president has ever tried.

In the closest equivalent case to date, in March Trump fired two Democratic FTC commissioners, Alvaro Bedoya and Rebecca Slaughter, who had term appointments ending in 2026 and 2029. The two have filed suit
[link removed] to get their jobs back.

The Supreme Court has explicitly ruled that a president may not fire a commissioner of the FTC, except for cause. In the 1935 case of **Humphrey's Executor v. United States** [link removed], the high court unanimously held that President Roosevelt had wrongfully fired an FTC commissioner, a precedent that has been repeatedly upheld and that extends to other agencies, of which the Fed is the most independent of all.

Recent cases have suggested that the Roberts Court might like to overturn

**Humphrey's Executor**. In the 2020 Seila Law [link removed] case, the Court held, 5-4, that Congress's provision prohibiting the president from firing the head of the Consumer Financial Protection Bureau before the end of a term was unconstitutional.

But even if the Court reversed


**Humphrey's Executor** and allowed the president to fire other independent regulators, many legal scholars think that the Court would carve out protection for the Fed's independence. Justices Roberts, Kavanaugh, and even Alito have dropped hints in various rulings that they consider the Fed to be in a special category.

Quite apart from the law, and Trump's willingness to obey it, the likely economic fallout from an attempt to fire Powell should give Trump pause. A Trump takeover of the Fed would portend looser money and more inflation. That in turn would create an even more extreme stock market collapse.

While the Fed zealously guards its independence, it is a political animal. Past Fed chairs have regularly done deals with presidents.

During World War II, the Fed agreed to buy up as much war debt as the Treasury needed to sell it, at low interest rates. In the run-up to the 1972 presidential election, President Nixon successfully pressed his longtime ally, Fed Chair
Arthur Burns, to run a loose money policy despite increasing signs of inflation.

In 1993, Fed Chair Alan Greenspan made a deal with President Clinton in which Clinton cut the budget deficit and the Fed cut rates. And in the aftermath of the 2008 collapse, Fed Chair Ben Bernanke worked hand in glove with Treasury Secretary Tim Geithner and President Obama to bail out the banks.

Then again, these men were all rational actors. But Trump is mad as a hatter, and he punishes people for behaving rationally. It really is all about kissing Trump's ass, and Powell has to be aware of that.

Though he has defended an independent monetary policy, Powell has kissed up to Trump in other ways. He has further weakened bank regulation since Trump took office, tossed DEI overboard, and went along with ouster of Vice Chair for Supervision Michael Barr, a Democrat, so that Trump could get a more congenial Republican successor.

Jay Powell is far from my favorite public official. He kept rates
too high during the recent recovery and he has been a patsy for the banks. Still, you fight with the army you have, and the Fed does have some freedom to maneuver. We'll see what kind of economic patriot Powell turns out to be.

~ ROBERT KUTTNER

Follow Robert Kuttner on Twitter [link removed]

On the Prospect website

The Republican Budget Plan: Snatch Food From the Mouths of Hungry Children [link removed]
SNAP cuts are 'going to have a massive shock wave across the country, and everybody will feel it.' BY EMMA JANSSEN

The Manufacturing Boom We Already Had [link removed]
A Q&A with Biden industrial-policy official Alex Jacquez on the right way to boost domestic production in critical sectors BY DAVID DAYEN

Trump Opens the Door to More Medicare Advantage Fraud
[link removed]
Private insurance companies just got a massive boost to their payments through the program, while DOGE fires the people responsible for oversight. BY RYAN COOPER

USC Follows Amazon and Musk's SpaceX in Calling Labor Board Unconstitutional [link removed]
To block a union that would represent 2,500 faculty members, the private university echoed a corporate argument. BY DEBBIE TRUONG

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