White House increases pressure on Fed chair by focusing on headquarters renovation costs.

In a notable development in U.S. economic policy, President Donald Trump is intensifying his efforts to influence the Federal Reserve, specifically aiming to compel Chairman Jerome Powell to either reduce interest rates or resign. This new tactic includes a focus on the costly renovations planned for the Federal Reserve’s headquarters, which Trump has deemed excessive and potentially in violation of government building regulations.

On Thursday, Russ Vought, a key budget advisor to Trump, addressed a letter to Powell expressing the President’s deep concerns over what he described as an “ostentatious overhaul” of the Federal Reserve’s facilities. Along with expressing discontent regarding the renovation costs, Trump has recently appointed two close aides to a commission that will review these construction plans—an initiative that further scrutinizes Powell’s leadership as he approaches the end of his term next May.

The President has previously expressed his frustrations with Powell, criticizing him harshly and questioning his decisions and competence. This public campaign marks an unprecedented shift in the relationship between the executive branch and the Federal Reserve, historically regarded as an independent entity responsible for U.S. monetary policy.

If Trump succeeds in pressuring Powell to resign or in achieving a reduction in interest rates, it could signify a significant encroachment of political influence into a sector often insulated from such pressures. Yet, such actions also pose risks to the independence of the Federal Reserve, a principle that is foundational to its role in maintaining economic stability.

Powell has refrained from engaging with the President’s criticisms, abiding by a political neutrality that has characterized his tenure. Although he has acknowledged modifications to the initial renovation proposals, no further comments were made by Federal Reserve officials in response to Vought’s letter.

Despite Powell’s resistance to reducing interest rates—driven by concerns about inflation and the impact of tariff policies on consumers—Trump remains adamant. He contends that lowering rates would alleviate financial burdens on consumers, making loans more affordable and potentially easing the government’s debt service costs, especially in light of new legislation that may elevate the federal deficit.

Trump’s fervent calls for interest rate reductions have not only resonated within political circles but have also sparked concerns among economists. Many warn that hasty reductions could revitalize inflation, counteracting the intended benefits. The financial markets’ response to such a policy shift remains uncertain and could complicate the economic landscape.

In a strategic maneuver to further apply pressure on Powell, Trump has enlisted supporters to challenge the Fed, including accusations of misleading Congress regarding renovation plans. Vought’s letter emphasizes that aspects of the renovation, such as luxury amenities, stand in stark contrast to fiscal prudence.

The ongoing debate about the Federal Reserve’s renovation may escalate into a legal dispute between the White House and the Fed, which is permitted under U.S. law to determine what constitutes suitable operational quarters. Economists, including finance professor Sung Won Sohn, have noted that while scrutiny of the central bank’s budget is important, it should not undermine the Fed’s operational independence.

The consequences of compromising this independence could have lasting negative effects on the economy, long-term inflation expectations, and overall economic stability. As this political drama unfolds, the implications for the Federal Reserve’s role in the economy and its relationship with the executive branch are paramount to watch.

Source: Media News Source