The president backed off his threats to fire Federal Reserve Chairman Jerome Powell earlier this year, but he’s reportedly got a new plan to challenge the central bank chief.
Donald Trump is reportedly weighing a slate of potential candidates to replace Jerome Powell as the central bank chief once his term ends in 2026. In an unusual move, he is also considering announcing the replacement Fed boss as soon as September or October, the Wall Street Journal reported on Wednesday.
The market’s reaction to the idea was seen in the Treasury yields and the dollar.
The 10-year US Treasury yield ticked lower by two basis points on Thursday, trading around 4.26%. The yield is down 30 basis points since the start of the year.
Traders are eyeing the possibility that Powell’s replacement will be more amenable to Trump’s calls to lower interest rates. Powell has angered the president all year by sticking to the script on the central bank’s cautious approach to monetary policy while it watches the path of inflation.
The US dollar, which falls on expectations of lower interest rates, also continued its slide. The US Dollar Index, which weighs the greenback against a basket of foreign currencies, weakened to 97, down 11% year-to-date.
Trump announcing a new Fed Chair this fall would be considered relatively early, given that Powell’s term doesn’t officially end until next May.
To those who have been following the president’s yearslong feud with Powell, the move can be read as a sign Trump may be trying to undermine Powell’s influence as Fed Chair, given Trump’s long history of pressuring Powell to lower interest rates at his will.
The move is also partly explained by investors growing more bullish on the prospect of rate cuts later this year. Markets are pricing in a 90% chance the Fed will cut rates at least two more times by the end of 2025, according to the CME FedWatch tool.
“I think it is clear that Trump will choose a Chair who supports his policy goals, leading markets to interpret the news as dovish,” Aaron Hill, the chief market analyst at FP Markets, wrote in a note on Thursday.
David Morrison, a senior market analyst at Trade Nation, also thinks the downward move in the dollar has been “intensified” by the Journal’s report.
“Mr Powell has repeatedly warned that the Trump administration’s tariff plans will stoke inflation while boosting uncertainty,” Morrison said in a note. “This uncertainty, along with the US’s burgeoning national debt, are also factors weighing on the US dollar, causing some analysts to question the future of its status as the world’s reserve currency.”
Naming a new chair so far ahead of the end of the current chair’s term would be an unusual move, but it wouldn’t be the Trump’s first attempt to fight the Fed.
In December and April, Trump teased the idea of firing Powell from his post, but later walked back those comments after a sharp sell-off in the bond market and the US dollar.
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Treasury Secretary Scott Bessent — one of the contenders for the next Fed Chief, according to the Journal’s report — also floated the idea of a “shadow Fed Chair” in October of last year. The shadow chair would be a Fed Chair announced before the end of Powell’s term who could indicate to markets what to expect after Powell is gone, Bessent told Barron’s at the time.
“My idea is you just get forward guidance and let everyone know how the Fed chair is going to be,” Bessent said. “I think it actually enhances the credibility of the Fed.”
Former Fed Gov. Kevin Warsh and National Economic Council director Kevin Hassett are among Trump’s list of contenders, sources told the Journal.
Trump, meanwhile, fired off more criticism of Powell this week, several days after the Fed opted to keep interest rates level at its last policy meeting. In a post on Truth Social, Trump called the Fed Chair “too late” and a “very dumb, hardheaded person,” and blamed Powell for costing the US $800 billion a year by not cutting interest rates.
