President Trump’s ramped-up attacks on Federal Reserve Chair Jerome Powell have Washington Republicans bracing for a confrontation that could make the turmoil in the financial markets much worse and put the Fed’s independence and credibility in jeopardy.
Republican aides and strategists say GOP lawmakers are highly anxious about Trump’s tariff strategy and fear that he will send more waves through the financial markets by threatening to interfere in the central bank’s domain of setting monetary policy.
The stock markets sold off sharply, and volatility spiked up Monday after Trump blasted Powell, whom he appointed as Fed chair in 2018, as a “major loser” and demanded he cut interest rates “NOW.”
A senior GOP aide said Republican senators “care a heck of a lot” about the Fed’s independence and predicted that GOP lawmakers will step in to defend Powell next week when they return to Washington from a two-week recess.
“Republicans on the [Senate] Banking Committee and even the [House] Financial Services Committee have a lot of faith in Powell and think it would be ill-advised to undermine his economic agenda by dismissing Powell or prematurely cutting rates,” the source said.
“Powell’s got good relationships with the Hill,” the aide added, noting that Powell, who was appointed by Trump and is a Republican, can “call in favors” with key GOP chairs in Congress.
Even if Powell doesn’t ask for help, senior Republicans such as Senate Finance Committee Chair Mike Crapo (R-Idaho) and Banking Committee Chair Tim Scott (R-S.C.) may defend the Fed’s independence “given the way the markets reacted” Monday, the aide said.
The Dow Jones Industrial Average slid 971 points, losing 2.48 percent, while the S&P 500 and Nasdaq composite suffered similar percentage drops.
At the same time, the yield on 10-year and 30-year U.S. Treasurys climbed as investors digested Trump’s criticism of Powell.
The strength of the U.S. dollar also dropped Monday, reaching its lowest level since 2022.
A Republican strategist warned that Trump’s efforts to pressure Powell are likely to backfire, as have past efforts to intimidate the independent Fed.
“It usually backfires. I think people are concerned about that,” the strategist said.
The source said some MAGA-aligned Republican senators may be cheering the president because “Trump has definitely transformed the party, so there are more people like him” in the Senate.
But more traditional Republicans aren’t happy about efforts by the president to pressure the Fed to cut rates, the strategist said.
“Certainly the old-school people are thinking, ‘This isn’t going to work,’” the source added.
The strategist warned the market reaction could be “catastrophic” if Trump outright fires Powell to get the Fed to cut interest rates to spur the economy at a time when financial institutions are warning the country could be headed for a recession because of Trump’s wide-ranging trade war.
The source said Republicans view Powell as an important pillar of stability in the U.S. economy amid Trump’s unpredictable tariff war against foreign trading partners, including allies such as Canada, Japan, South Korean and Taiwan.
“The market is all based on emotions and vibes, so getting rid of that stability amidst everything else would be very bad. I’m sure that [Treasury Secretary Scott] Bessent and [Commerce Secretary Howard] Lutnick are telling the president that,” the strategist added.
Axel Merk, the president and chief investment officer of Merk Investments, told The Hill in an interview that Monday’s volatility in the financial markets were largely due to concerns about the implications of Trump’s tariff war.
He said the market reaction would be much worse if Trump pushed Powell out of his job.
He warned if the Fed loses credibility, it “makes monetary policy more expensive to implement,” because the Fed chair would need to do more than to speak a few words to calm markets.
If the White House is seen as directing monetary policy, the Fed would have to make bigger moves to influence the markets.
“Rather than saying a few words, you’ll have to move interest rates, you might have to intervene in the markets,” he said. “A lot of bad stuff can happen when you have political interference.”
“Counties that have interfered [politically] in the monetary policy have had very bad outcomes,” he warned.
If investors lose confidence in U.S. monetary policy and fear that inflation will rise substantially over the next decade, they could invest elsewhere, which would drive up interest rates and make it more expensive to do business in the United States and more costly to service the nation’s huge debt.
Krishna Guha, vice chair of Evercore ISI, the equity research and sales arm of the global investment advisory firm, warned Monday there would be a “severe” market reaction if Trump tries to remove Powell.
“If you start to raise questions about Federal Reserve independence, you are raising the bar for the Federal Reserve to cut. If you actually did try to remove the Federal Reserve chairman, I think you would see a severe reaction in markets with yields higher, dollars lower and equities selling off,” Guha told CNBC’s “Squawk Box.”
Federal Reserve Bank of Chicago President Austan Goolsbee also warned that removing Powell could “undermine the credibility of the Fed.”
Senate Republicans flexed their willingness to protect the independence of the Fed a few years ago when they blocked Judy Shelton, Trump’s controversial pick to serve on the Federal Reserve board, in 2020.
Shelton’s nomination was criticized because of her past statements in support of higher interest rates and a return to the gold standard.
A former Senate aide familiar with the Senate debate at the time said former Sen. Lamar Alexander (R-Tenn.), former Sen. Mitt Romney (R-Utah) and Sen. Susan Collins (R-Maine) opposed her nomination.
Another controversial Trump pick to lead the central bank, conservative commentator Stephen Moore, withdrew from consideration in 2019 after facing Republican opposition in Congress.
The Republican aide and the GOP strategist noted that Powell’s tenure as chair only lasts until May of 2026, which means that Trump could very well wait another year for Powell to step down instead of ousting him in the next few weeks or months.
Republican lawmakers, who are in the midst of the two-week Easter recess, have stayed largely quiet as the war of words between Trump and Powell has heated up.
Trump on Thursday said he’s not happy with Powell and declared during a visit in the Oval Office from Italian Prime Minister Giorgia Meloni that he has the power to replace him.
“If I want him out, he’ll be out of there real fast, believe me,” Trump said. “I’m not happy with him.”
Trump also said that the Fed chair’s “termination cannot come fast enough.”
Powell was first nominated as Fed chair in 2017 and reappointed by former President Biden.
He said in November he would not step down as chair if Trump asked him.
