Why President Trump wants to fire Powell now 

Trump has made it clear since he was inaugurated that he wants Powell to lower interest rates, which has not happened. On Thursday, the President said Powell’s termination “cannot come fast enough” and on Friday White House economic adviser Kevin Hassett said Trump and his team were studying whether Trump could fire the Fed Chair. I talked about this turning point on the Friday episode of the HousingWire Daily podcast.

I believe President Trump will use national security as his reason for firing Powell. Since he uses national security as his rationale for tariffs, if this is going to be a full-blown trade war, using that as a reason to fire Powell isn’t out of the realm of possibility.

In any case, let’s look at the context of why Trump is pushing for this change now.

Trade wars are hard

When President Trump took office in 2016, he held off on initiating a trade war until 2018, strategically waiting until his corporate tax cuts were in place. At that time, both Trump and his economic team fully understood that entering a global trade conflict could wreak havoc on markets and businesses.

But Trump’s first-term trade war pales in comparison to what we’re facing today. Back then, business investment stalled completely, but Trump negotiated deals revitalizing economic data by the end 2019. The first two months of 2020 were intense before the onset of COVID-19.

Now, we must recognize that the situation is drastically different. Here’s why:

1. The economic data showed a slowdown in the labor market before the trade war. Job growth was declining, and unemployment had already increased from the lows of the cycle.

2. Higher mortgage rates put the homebuilders at risk of laying people off as their confidence sinks.

3. As you can see below, losing residential construction workers is very important to my recession model and forward-looking confidence data is fading.

4. The government has been aggressively firing federal workers and withdrew money from the economy.

5. The Fed policy has been moderately restrictive and Chairman Powell sounded hawkish in his tone this week, triggering Trump’s wrath.

Navigating the trade war backdrop has become increasingly challenging. The White House economic team has noted that while surveys indicate softer economic conditions, hard data — such as labor statistics and retail sales — remains strong. However, given the trend in the survey data, it may not be long before the hard data starts to weaken as well. This could increase pressure on the administration to demonstrate tangible results from the trade war. The president believes that if interest rates were lower, he could manage the situation more effectively.

Lower rates and energy prices help consumers

President Trump has talked about lowering mortgage rates and energy prices. These changes might occur naturally if economic data weakens. With the trade war escalating, he would prefer to see lower mortgage rates now as the situation intensifies. With lower gas prices and mortgage rates, the president and his economic team could talk about how the economy is better for working families, even if Wall Street has a fit and stocks sell off. 

This approach could involve supporting farmers and finding ways to assist truckers who have experienced income and job losses — focusing on groups that are part of his core base of supporters. The aim would be to implement these measures before the midterm elections.

Should the economy worsen and heavily impact red states, the political landscape could shift and lead to a Democratic majority in Congress. That could result in a reassessment of tariff powers, complicating governance for the last two years of Trump’s term. In contrast, China operates without the constraints of electoral cycles, adding another layer to these trade discussions.

Conclusion

If you’re wondering why President Trump launched an aggressive attack this week, it’s clear: the trade war has escalated significantly and time is running out before the midterm election cycle kicks in.

But the bigger question remains: Can Trump actually fire Powell? The White House Economic Council indicated today that they are exploring this possibility. Regardless of the outcome, time is of the essence — midterm elections are looming, and Trump needs lower rates and energy prices to combat this ongoing crisis effectively.