By Ashok Nilakantan Ayer
WASHINGTON: The conflict between President Donald Trump’s administration and the Federal Reserve has moved from simmer to full boil. In a stunning escalation Monday morning, Treasury Secretary Scott Bessent called for a sweeping review of the Federal Reserve, questioning not just its recent decisions but the very structure and mission of the century-old institution. The remarks, delivered during a CNBC interview, come amid growing tension between the White House and Fed Chair Jerome Powell—whose job Trump has repeatedly threatened, despite constitutional constraints that make firing him nearly impossible.
“What we need to do is examine the entire Federal Reserve institution and whether they have been successful,” Bessent told CNBC’s Squawk Box. “If this were the FAA and we were seeing this many mistakes, we would have shut it down and asked what went wrong.”
Bessent’s critique didn’t stop at abstract institutional performance. He slammed the Fed’s economic orthodoxy, took aim at its refusal to cut interest rates despite falling inflation, and mocked the central bank’s academic elite: “All these PhDs over there, I don’t know what they do.”
The Treasury Secretary’s call for reform echoes Trump’s own intensifying frustration with the central bank. Since returning to office in January, Trump has repeatedly blasted Powell for not aggressively slashing interest rates, claiming the Fed is holding back U.S. growth while other global powers act more decisively.
In a rally last week in Youngstown, Ohio, Trump declared, “Europe has cut their rates at least TEN TIMES since I took office. And what do we get from the Fed? Nothing but excuses.”
Indeed, the European Central Bank and the Bank of Japan have continued their ultra-loose monetary policy, triggering capital inflows into their economies while the Fed has held back, waiting for clearer signs of economic slowdown. The last time the Fed cut rates was in December 2024, completing a modest easing cycle that trimmed the fed funds rate by 1%. But since then, Treasury yields and mortgage rates have paradoxically ticked upward—a dynamic that has puzzled even seasoned market watchers.
While Powell has signalled openness to easing in the fall—markets are currently pricing in a September rate cut—he remains cautious. Privately, the Fed Chair has voiced concern that premature or politically motivated rate cuts could undermine the central bank’s credibility. Inflation, while easing, remains near the 3% mark, and Powell is reportedly wary of fuelling asset bubbles or emboldening speculative crypto flows already boosted by Trump-era deregulation.
Adding fuel to the fire is the controversy surrounding the Fed’s $2.5 billion headquarters renovation project. The central bank’s Washington buildings are undergoing extensive upgrades, including a state-of-the-art digital infrastructure overhaul, security retrofits, and energy efficiency redesigns. But cost overruns, delayed timelines, and leaked images of lavish office upgrades have become fodder for right-wing media and Trump himself.
“Why is Jerome Powell getting a palace while Americans can’t afford rent?” Trump asked rhetorically during a press event earlier this month, holding up printed renderings of a redesigned executive suite. “It’s YOUR MONEY. And they’re using it to build a fortress of failure!”
Sources close to the administration say Trump plans to personally tour the Fed construction site in August, in what one aide called “a visual audit.”
Despite Trump’s constant public threats to remove Powell—a narrative that resurfaced last week—constitutional and statutory barriers remain. Under the Federal Reserve Act, the President can appoint and remove Fed Board members for cause but cannot remove the Fed Chair at will. Powell’s four-year term as Chair doesn’t expire until May 2026, and legal scholars from both parties warn that a politically motivated firing would trigger a constitutional crisis—and potential legal blockades from Congress.
In fact, Treasury Secretary Bessent has reportedly played the role of informal mediator behind the scenes, trying to calm Trump’s impulses and steer him away from an outright showdown.
“President Trump solicits a whole range of opinions and then makes a decision,” Bessent said when pressed on a Wall Street Journal report that he personally urged Trump not to fire Powell. “At the end of the day, it’s his call. But we respect the rule of law.”
Still, speculation is rife that Bessent—an ex-hedge fund heavyweight and longtime Trump ally—is being groomed as Powell’s eventual replacement. While no formal nomination is possible until Powell’s term ends or he resigns, the prospect of a Bessent-led Fed already sends shivers down Wall Street’s spine.
“He’s got the temperament of a trader, not a central banker,” one former Fed official said anonymously. “And if he’s running the show, expect fireworks.”
The core dispute between Bessent and Powell reflects a deeper philosophical divide about the role of the Fed in a post-pandemic, crypto-driven, supply-constrained world. Bessent and Trump see the Fed as a tool to juice growth, pump markets, and support “America First” industrial policy. Powell, a traditionalist, believes in data-driven policy, inflation targeting, and Fed independence.
“They were fearmongering over tariffs,” Bessent said Monday, “and yet we’ve had almost no inflation. They’re stuck in the past.”
Trump has also tied the Fed’s reluctance to cut rates with its failure to support his signature initiatives: tariffs on Europe and Mexico, the crypto deregulation order (which has fueled the rise of so-called “TrumpCoin”), and massive infrastructure financing initiatives—all of which benefit from cheap borrowing costs.
As the economy slows and the 2026 midterms loom, the pressure on the Fed will only grow. Trump has made it clear: rate cuts, growth, and an obedient central bank are key to keeping his populist economic engine roaring.
Markets are bracing for a September cut—but if Powell balks, the administration may escalate its war on the Fed. Legal fights, public hearings, and perhaps even executive actions to “audit” the central bank may be on the horizon.
Whether Powell survives the political hurricane, or Bessent becomes the next face of a MAGA-fied Fed, one thing is certain: the once-sacrosanct wall between the central bank and the Oval Office is now in rubble. And the new era of monetary warfare has begun. (IPA Service)
