According to three informed sources, President Donald Trump's sudden change in tone towards Federal Reserve Chairman Jerome H. Powell on Tuesday reflected private lobbying by his senior advisors, who had urged the president to stop his fierce criticism of the central bank.
On Monday, when Trump attacked Powell as the "number one enemy," the stock market plummeted, sparking speculation that the president might dismiss the Fed chairman. However, by Tuesday afternoon, Trump seemed to moderate his language, stating that he had "no intention" of firing Powell and accusing the media of "exaggerating".
Stock index futures jumped in overnight trading, and the market continued to surge after opening on Wednesday.
Anonymous sources familiar with internal discussions said the president's attitude shift came after advice from several government officials, including Treasury Secretary Scott Besent and Commerce Secretary Howard Lutnick. The officials advised the president that the government did not need to cause further financial market turmoil by engaging in a full-scale war with the Federal Reserve, especially given the ongoing trade disputes and new tariffs. One source noted that the stock market decline made Trump more inclined to keep Powell in his position than a month earlier.
Trump stated on Tuesday: "I want to see him be more aggressive on rate cuts. Now is the perfect time to cut rates. Is it the end of the world if he doesn't? No, but it's a good time. Indeed... He could have acted earlier. But I have no intention of firing him." Spokespeople for the Treasury and Commerce Departments declined to comment.
White House spokesperson Taylor Rogers issued a statement: "We will not discuss private conversations that may or may not have occurred. The president has an excellent team of advisors who provide advice on various issues, but the final decision rests with the president."
At the same time, the president also softened his language on the US-China trade war. The Wall Street Journal reported on Tuesday that the government was considering reducing tariffs on China by 50% to 65%. Trump said: "We're doing well with China. I think we're doing well with almost all countries. Every country wants to work with the United States." He added that China "must ultimately reach an agreement".
During his first term, Trump had considered replacing Powell multiple times but was always dissuaded by his staff, who warned that such a move would disrupt the markets and that the president lacked the legal authority. Trump originally nominated Powell, and current President Biden has since reappointed him, with his term set to expire next year.
In recent weeks and months, Trump has revisited the idea of replacing the Fed chairman with a new, more aggressive approach, causing long-term observers to worry that he might finally take action. The factors that previously constrained him—legal concerns, institutional norms, and strong opposition from senior officials—have largely disappeared.
Under federal law, the Fed chairman can only be removed for "cause"—a term generally interpreted as serious misconduct or dereliction of duty, not policy disagreements. However, Trump and some of his allies have signaled a willingness to challenge this precedent, suggesting that the legal provision leaves room for reinterpretation by a White House willing to push legal boundaries.
"The entire environment has changed dramatically," said Peter Conti-Brown, a Federal Reserve historian at the University of Pennsylvania.
The concern escalated dramatically a week ago when Powell spoke at the Chicago Economic Club, using the strongest language to date to express concerns about Trump's economic policies, particularly tariff policies. The next day, Trump posted on social media platform Truth Social that he wanted to fire Powell immediately, and on Monday directly called him the "number one enemy". The president warned that without immediate rate cuts, the US economy could slow down under widespread trade war impacts. These comments triggered a collective dive in the three major stock indices, though the market recovered most of the losses by Tuesday.
"Trump ultimately made a wise move," said Stephen Moore, a former external economic advisor to Trump. "It was clear that the market would react violently negatively to firing Powell, and given the market volatility of the past month or so, now is not a good time to increase uncertainty."
The Federal Reserve has refused to comment on Trump's repeated attacks. Powell has firmly stated that the president does not have the right to dismiss him and plans to complete his chairman term until May 2026. The Fed's structure is designed to insulate it from White House or Congressional political pressure on interest rate decisions, with this institutional arrangement intended to keep monetary policy away from short-term political goals—because elected officials tend to prefer lowering rates to stimulate immediate growth, even if this might cause long-term inflation and ultimately harm the overall economy.
Although many analysts believe Trump is unlikely to actually seek to fire Powell, the risk was sufficient to cause a rare simultaneous decline in US bonds, stocks, and the dollar on Monday.
Krishna Guha of Evercore ISI noted that the market reaction clearly signaled that "impaired Federal Reserve independence would be negative for all major US asset classes". He suggested this also provided a partial preview of "potential consequences if Trump were to actually try to fire Powell".
The Federal Reserve typically raises borrowing costs through rate hikes to curb inflation and cuts rates when concerned about economic slowdown. Last week, Powell warned that Trump's tariff policies could "very likely" cause temporary inflation spikes that might last longer than expected.
Powell stated that cutting rates would be challenging if economic slowdown and inflation rise simultaneously. However, he remained confident in the Fed's independence, emphasizing strong support in Washington—especially in Congress, which holds the most significant influence.
