President Donald Trump has repeatedly attacked Federal Reserve Chairman Jerome Powell for not lowering interest rates faster, going so far as to threaten his dismissal. Trump's main complaint is the Fed's benchmark interest rate, currently 4.25 to 4.50 percent, which he believes should be as low as 1 percent. While inflation is currently modest, the Fed fears that Trump's tariffs could drive up prices. These attacks have raised concerns about the Fed's independence, with critics like David Wilcox suggesting the administration is using the Fed's renovation project as a pretext for firing Powell. Trump's actions have historical precedent, echoing pressure exerted by Presidents Johnson and Nixon on their respective Fed chairs.

Trump's threats have caused market volatility, exemplified by the "TACO Trade"—Trump Always Chickens Out—where markets initially react negatively but recover after Trump denies plans to remove Powell. However, experts warn that removing Powell would negatively impact the stock market and overall economic confidence. While Trump could fire Powell "for cause," the legal interpretation is very narrow, and there's ongoing debate about whether the current situation constitutes "cause". Fed historian Mark Spindel suggests Trump might retain Powell until his term expires in May 2024, using him as a scapegoat and considering the potential negative impact on the stock market and his business-oriented support base.

Impact Statement: Trump's actions undermine the Fed's independence and create uncertainty in financial markets.