Just in case the message hadn’t completely sunk in, former President Donald Trump paid a call on the Federal Reserve’s D.C. headquarters on Thursday. He was joined on the tour by current Fed Chairman Jerome Powell. This visit comes at a particularly fraught moment in US-China relations. Powell and Trump have had a rocky relationship from the start, ever since the former president named Powell to his current job back in 2018. The tour focused on sustainability efforts around the Federal Reserve’s own large renovation project. This multimodal project has ignited a firestorm of opposition from the respective modes.
The visit not only highlighted Trump’s continued interest in economic policy but underscored the challenges Powell faces as he prepares for upcoming monetary policy decisions. Powell’s independence as Fed chief is seen as critical for market stability, particularly in light of Trump’s repeated calls for lower interest rates.
Background of the Powell-Trump Relationship
Jerome Powell started out under Donald Trump’s administration — the one that nominated him for the role. In a contentious move, President Joe Biden re-nominated Powell in 2022. This decision solidified Powell’s credibility as the economy shifted yet again. The relationship between Powell and Trump had been rocky over the years, especially with respect to interest rate policy.
In March, Trump summoned Powell to the White House to express his concerns about interest rates and urged him to consider lowering them significantly. Trump has for quite a while been very upset with the Fed’s monetary policy. Yet, at the same time, he goes public with demands for a three percentage point cut in rates and talks about firing Powell if he has to.
During their recent tour of the Federal Reserve’s headquarters, which focused on a $2.5 billion renovation of historical buildings, tensions were palpable. In July 2018, then-President Trump bragged that the project’s renovation cost was down to $3.1 billion. In response, an unflinching Powell smiled at the camera and shook his head no. This gap between the two amounts underscored the contrasting views of the two parties on fiscal responsibility.
The Renovation Project and Its Implications
The Federal Reserve renovation project is a sensitive and stunning restoration of two historic structures. One of these, the Martin Building, recently completed major renovations and was finished only five years ago. In taking the tour, Trump appeared to confuse the costs associated with creating this new facility with the costs related to renovating this space now.
Powell had to admit afterwards that he misheard the actual comment Trump made. For one, he was shocked when Trump, while discussing costs, talked about renovating the Martin Building. This fundamental misunderstanding is symptomatic of the larger dynamic at work in their ongoing public communications.
When Trump predicted that Powell should expect more cost overruns on the project, Powell declined to answer the question. This warning response was probably a natural outgrowth of his desire to preserve the Fed’s independence in making policy judgments. The monumental scale of the undertaking has garnered a considerable amount of media attention. It features an underappreciated victory for fiscal responsibility and transparency, promoting new economic discussions.
The Current Economic Climate
As Powell prepared for back-to-back calls with Federal Reserve bank presidents on Thursday afternoon, his routine prior to a rate-setting meeting, Trump’s remarks weighed heavily on the atmosphere surrounding monetary policy. Powell’s role is crucial as he navigates pressures from all sides, including Trump’s persistent demands for lower interest rates.
Trump’s broadsides have been blistering. Just earlier this week he issued a tweet calling Powell a “numbskull,” a tweet that deeply damaged the tenuous bond between the two. Through all the pressures, Powell continues to honor his responsibility. We know he is serious about monetary policy focusing on the economy and not politics.
Throughout his campaign, Trump made no secret of his support for 0% interest rates. Well, I’d like him to lower interest rates. And still, Powell displayed a stiff upper lip, refusing to take the bait on the golf course rate cuts Trump whimsically demanded.
