Trump’s U-Turn on Firing Powell: Two Key Secretaries Defused the Crisis

President Donald Trump, notorious for his frequent policy reversals—especially on tariffs—has once again changed course, this time regarding the fate of Federal Reserve Chair Jerome Powell. After weeks of escalating attacks and hints at Powell’s removal, Trump now insists he never intended to fire him, accusing the media of spreading falsehoods, although he continues to pressure Powell for more aggressive interest rate cuts. What he said this time sent U.S. stocks soaring. According to American media, Trump’s abrupt change of heart was influenced by the intervention of Treasury Secretary Bessent and Secretary of Commerce  Lutnick, while White House lawyers quietly reviewed whether the president could legally dismiss the Fed chair.

Federal Reserve Chair Jerome Powell speaks during a news conference after the Federal Open Market Committee meeting, Wednesday, March 19, 2025, at the Federal Reserve in Washington. (AP Photo/Jacquelyn Martin)

On April 16, Powell said, “Markets are struggling with a lot of uncertainty, and that means volatility.” Given the sweeping changes in President Trump’s tariff regime, his view is that markets are “functioning just about as you would expect them to function”. He further noted that the real issue is the direction of trade policy, and until that’s clear, it’s impossible to make sound assessments, implicitly criticizing the administration’s erratic approach. Unsurprisingly, this triggered a barrage of attacks from Trump.

On April 17, Trump posted on his social platform: “Powell’s actions are always ‘too late and wrong.’ He should have cut rates like the European Central Bank long ago, and now he should cut them immediately. The sooner Powell leaves, the better.”

The next day, during a White House interview, Trump was asked about Powell’s claim that he wouldn’t resign even if the president requested. Trump retorted, “He’ll leave. If I ask him, he’ll leave… I’m not happy with him. If I want him out, he’ll be out there real fast, believe me,” making clear his intent to replace Powell.

Trump’s chief economic adviser, National Economic Council Director Kevin Hassett, later stated the administration would continue to study the issue.

On April 21, Trump again lashed out on social media, “Jerome Powell of the Fed, who is always TOO LATE AND WRONG, yesterday issued a report which was another, and typical, complete ‘mess!’ Trump wrote, “Powell’s termination cannot come fast enough!”, warning that without timely rate cuts, the U.S. economy could slow down. These remarks triggered a sharp selloff, with the Dow plunging nearly 1,000 points.

Yet the very next day, when asked in the Oval Office if he planned to fire Powell, Trump abruptly reversed course, claiming he never intended to do so, though he still urged Powell to take more aggressive action on rates.

What happened behind the scene to prompt this reversal?

According to The Wall Street Journal, before Trump’s public U-turn, Treasury Secretary Scott Bessent and Secretary of Commerce Howard Lutnick intervened. Some senior White House officials had taken Trump’s threats seriously, prompting White House lawyers to privately examine legal options, including whether Powell could be dismissed “for cause”—a standard typically interpreted by courts as requiring misconduct or wrongdoing. Any attempt to oust Powell would have escalated tensions between the White House and the Fed.

Earlier in the week, these discussions ceased after Trump told senior aides he would not try to remove Powell,. Insiders say Bessent and Lutnick warned that firing Powell could trigger severe market turmoil and legal battles. Lutnick also told Trump that removing Powell would likely not change interest rates, as other Fed governors might maintain similar policies.

In fact, as financial markets reacted negatively to Trump’s aggressive trade and economic moves, he was forced to retreat and compromise.

Media analysis suggests that, despite Trump’s indifference to market swings in the eyes of the public, both he and his advisers closely monitor Wall Street and corporate reactions to his policies.

Most analysts believe that even if Trump managed to remove Powell before the end of his term, it would not deliver the lower rates Trump wants. At the last FOMC meeting, all 12 governors supported keeping rates unchanged.

Notably, last month, Trump promoted Fed Governor Michelle Bowman to Vice Chair for Supervision, but Bowman herself has repeatedly warned against premature or excessive rate cuts.

The Fed’s independence has long been regarded as “sacrosanct” by Wall Street bond investors. If foreign investors fear government interference in Fed policy, they could reduce purchases of U.S. debt, driving up rates. Political pressure on the Fed could also lead to short-term policymaking, increasing economic and market volatility.

As the world’s most important central bank, the Fed’s independence is critical not just for the U.S. economy but for global financial stability.

Tim Mahedy, chief economist at Access/Macro, warns that forcing out the Fed chair would trigger a “doomsday” market reaction: “The pain would be swift and severe,” likely forcing the president to backtrack immediately or risk a systemic financial crisis.

Deep Throat

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The global tariff war ignited by Donald Trump has drawn China’s strongest counter measures . Though China is a surplus economy and the US a deficit one, Beijing’s arsenal of strategic advantages—including diversified export markets, massive holdings of US Treasury bonds, control over critical minerals, and institutional resilience in crises—bolsters its ability to resist American coercion.
 
On April 15, the Financial Times (UK) analyzed that China’s leverage in the trade war stems from its ability to diversify import sources more easily than the US. Over 15% of China’s total exports flow to the US, yet economists note that China’s imports from America are concentrated in low-value-added agricultural products like soybeans, cotton, beef, and poultry. In contrast, US imports from China—such as electronics, machinery, and processed minerals—are harder to replace.
 
Marta Bengoa, Professor of International Economics at the City University of New York, stated that while mutual dependency remains high, the US is more vulnerable: “China can source agricultural goods elsewhere far more easily than the US can replace Chinese electronics and machinery.”
 
Julian Evans-Pritchard, Chief China Economist at Capital Economics, told the Financial Times that market reactions indicate greater pressure on Washington: “The US faces stronger incentives to return to negotiations.”
 
Since Trump’s first-term tariffs on steel, aluminum, solar panels, and washing machines (2018–2019), China has reduced reliance on US consumer exports. US government data shows China’s share of US imports fell from 21% in 2016 to 13.4% last year. Meanwhile, Chinese manufacturers have shifted production to Southeast Asian nations like Vietnam and Cambodia, leveraging cheaper labor and evading US tariffs. Exports to Vietnam surged 17% in March 2024.
 
Vietnam, now facing a 124 billion trade surplus with the US, risks a 46 percent “reciprocal tariff “, although it has been suspended for 90 days.

 Alicia García Herrero, Chief Economist for Asia-Pacific at French investment bank Natixis and Senior Research Fellow at Bruegel, stated that the suspension “provides some breathing room,” but even if Chinese exports were strictly halted, it would not inflict catastrophic damage on China’s massive economy. Last year, China’s GDP grew by 5%, with 1.5 percentage points attributable to its nearly $1 trillion global trade surplus. “China is a large, resilient economy,” she emphasized.

Bloomberg (US) reported on April 14 that the US, as a consumption-driven economy, harms itself by taxing Chinese goods. Consumers—often overlooked but politically influential—could weaken Trump’s negotiating position. While deficit economies traditionally hold an edge in trade disputes, US reliance on “Made-in-China” goods which is often produced by US firms in China complicates this.
 
Tariff exemptions for smartphones, laptops, and memory chips highlight this interdependence. Apple, reliant on Chinese production, cannot withstand 145% tariffs.
 
The Financial Times noted that China’s vast US Treasury holdings—if sold—could destabilize markets, raise concerns about US asset appeal, and accelerate dollar depreciation, increasing import costs. Trump’s April 9 decision to suspend “reciprocal tariffs” for 90 days (retaining a 10% “baseline tariff”) may reflect fears of a Treasury selloff. Reuters reported surging US bond yields last week—the sharpest rise since COVID-19—as investors speculated that China and other reserve managers are reassessing their holdings.
 
China controls over two-thirds of global rare earth production and 90% of processing capacity—critical for electric vehicle batteries. Despite Trump’s exemptions for key minerals, supply chain risks persist. China’s recent export controls on seven heavy rare earths signal readiness to deploy “new economic weapons,” per analysts Evan Medeiros and Andrew Polk.
 
Bloomberg observed that Beijing’s calibrated countermeasures—combining tariff retaliation with principled negotiation—demonstrate resolve. On April 10, China’s Commerce Ministry spokesperson reiterated: “Talks are welcome, but only on equal terms. If the US chooses confrontation, China will respond in kind. Pressure and threats are not the way to deal with China.”