US Treasury Secretary Scott Bessent urged US President Donald Trump not to fire Federal Reserve Chair Jerome Powell recently, citing the risk of potential economic, political, and legal consequences, The Wall Street Journal reported.
Removing Powell before his term ends next spring could harm the financial market and put the Federal Reserve into uncharted legal and political territory, Bessent told Trump, the WSJ said.
He added that as the Fed is likely poised to cut interest rates this year, it is unnecessary to fire Powell, according to the report.
Trump said on July 17 that he is not planning to fire Powell, but he kept the possibility open.
Powell has been criticized by Trump for not cutting interest rates. Recently, Trump and his allies have focused on the Fed’s US$2.5 billion (HK$19.6 billion) renovation project, suggesting Powell could be fired over alleged “fraud” in managing it.
In response, Powell wrote in a letter on Thursday that he has asked the Fed’s independent inspector general to conduct a new review of the project.
He noted that no VIP dining rooms or private elevators were built, and added that both buildings required major structural repairs.
Earlier, Bessent said in an interview on Bloomberg that a “formal process” has already begun to find a potential replacement for Powell.
Even though Powell is gone, the US interest rate is determined by the Federal Open Market Committee, which consists of 19 members, 12 of whom have voting rights, and Powell is just one of those votes.
If the dismissal is confirmed, the US dollar is expected to drop as much as 3 to 4 percent within 24 hours, according to Deutsche Bank's research note.
The note indicated that the US fixed income would also face a 30 to 40 basis points sell-off, led by the back-end.
“In sum, we consider the removal of Chair Powell as one of the largest underpriced event risks over the coming months,” the report said.
HELEN ZHONG
