Donald Trump brings war against the Fed to Jay Powell’s home turf

Donald Trump on Thursday waged his most brazen assault on an institution that sits at the heart of the US economy when he descended on the Federal Reserve.

As Trump toured the central bank’s Washington headquarters, the president slapped its chief, Jay Powell, on the back and said, “I would love it if he lowered interest rates.” 

Powell’s awkward laugh in the moments that followed underscores how Trump is publicly challenging the Fed in a way never seen in the history of the central bank.

“It’s exceedingly rare for the president to come to the Federal Reserve, and it’s never been done before under unfriendly circumstances,” said David Wilcox, a former Fed official who now works at the Peterson Institute and Bloomberg.

Trump, who towered over Powell as they addressed reporters in a corridor full of construction equipment, also berated him over the costs of revamping the headquarters of the world’s most powerful central bank.

The Fed chair disputed the president’s $3.1bn price tag for the work on the Marriner S Eccles building — a neoclassical behemoth featuring a bald eagle sculpture that has stood adjacent to Washington’s National Mall for nearly a century — as well as 1951 Constitution Avenue next door.

The Fed says the renovations will cost about $2.5bn and Trump’s calculation included a completed project nearby.

The clash, which was broadcast live on television, marks the most public rupture between a US president and Fed chief since the central bank gained its independence from government in 1951.

Away from the cameras, Trump was more polite and respectful, according to people familiar with the matter. Fed officials were also reassured by remarks that he was not going to fire Powell over the renovations, that they had a good meeting, and that the president was keen to get the project done.

Still, the barrage of criticism fired at Powell by Trump and his allies, both over the central bank’s renovation project but also its decision to hold borrowing costs at restrictive levels, has been met with alarm among the institution’s thousands of employees.

“It’s a pressure cooker,” said Claudia Sahm, a former staff economist at the central bank who is now at New Century Advisors. Others within the Fed privately describe being under constant bombardment, a feeling that has intensified as Trump administration officials have taken aim at the renovation project.

“The Fed can’t fight back in public. The last thing they need to do is get in a fight with the administration,” Sahm added. 

Some economists and ex-Fed officials are concerned that Trump will use the renovation project — which is $700mn over budget — as a reason to sack Powell “for cause”, a term generally thought to mean gross negligence. The Supreme Court has signalled that Trump cannot fire him for differences of opinion on monetary policy.

“It seems to me that this is, rather transparently, an attempt to build a pretext for dismissing Powell, and possibly other members of the board as well,” said Wilcox. “I don’t think the accusations stand up in the cold light of day.”

Daniel Tarullo, a Harvard law professor who was vice-chair of supervision from 2009 until 2017, said, “I just can’t believe that there’s any malfeasance or gross neglect. It’s just not Jay.”

Despite the recent focus on the renovation, Trump’s biggest bugbear has been Powell’s stance on keeping interest rates at the current range of 4.25 per cent to 4.5 per cent, even while other central banks have lowered borrowing costs.

The Fed cut borrowing costs by 1 percentage point last year but halted the rate-cutting cycle partly over fears that Trump’s tariffs will cause a new flare-up in inflation.

Trump has called Powell a “numbskull” and “stubborn mule” for refusing to accede to his demands to slash rates to about 1 per cent, a level typically set to stimulate the economy during economic crises.

Many of Trump’s arguments have been ridiculed by mainstream economists, with some analysts even comparing the US president to Turkey’s leader Recep Tayyip Erdoğan, who has sacked central bank chiefs for not cutting rates.

But Trump’s argument has appealed to his Maga base, many of whom are deeply sceptical of the Fed. Even among Americans more broadly, only 37 per cent are confident in Powell, according to an April Gallup poll.

“It’s hard to win the public relations battle on this. And I think that’s profoundly disturbing,” said a former senior central banker. “What worries me is that, with some of the arguments Trump makes, people might believe him. He is just so good at making arguments that are 100 per cent wrong and dangerous.”

Ex-Fed officials say Trump’s attacks are cutting deep among rank-and-file staff, many of whom view themselves as stewards of the mission handed by Congress to the Fed to keep the US economy on a stable footing.

“All these PhDs over there, I don’t know what they do,” Treasury secretary Scott Bessent said this week. He likened Fed staffers to beneficiaries of “universal basic income for academic economists”— a stinging comment from a man some consider a potential successor to Powell.

The Fed chief himself is adamant he will not be forced out of office before his term ends in May 2026. Major players in the US Treasury market, such as Pimco boss Dan Ivascyn, have warned that any attempt to curtail his tenure could spark a panic in bond markets. Wall Street leaders, such as Jamie Dimon, have also warned Trump against undermining the Fed.

“It’s not a great time to work for the central bank,” said Vincent Reinhart, a former senior Fed official now at BNY Investments.

“Criticism is to be expected, that’s why they created an independent central bank. But it’s really intense now, and it’s coming from so many different voices within the administration.” 

Sahm echoed those worries, saying, “I’m worried about the institution and, of course, I’m worried about my friends who are there.”

She added: “Next year, they’ll have a new chair and the politics are potentially going to come inside the building.”