The Trump administration is gearing up for significant economic shifts, with its proposed tariffs said to be setting the stage for a potential overhaul of the Federal Reserve’s (Fed) leadership.
Like Gary Gensler’s ouster at the SEC (Securities and Exchange Commission), reports indicate that Fed chair Jerome Powell may face a similar fate with discussions starting long before his term ends.
Jerome Powell’s Exit Planned As Trump Tariffs Spell Economic Hardship
Treasury Secretary Scott Bessent announced the Trump administration’s plans to interview candidates to replace Fed Chair Jerome Powell.
Notably, Powell’s term as Fed chair ends in May 2026, over a year out. With almost 13 months left, experts suggest the administration’s move may be a strategic response to the economic turbulence expected from Trump’s aggressive tariff policies in 2025.
The sentiment is that the Trump administration may pave the way for a new Fed Chair to steer the economy through 2026 with interest rate cuts and stimulus measures.
“The interest rates affect credit cards, they’ll affect auto loans, the bottom 50% of Americans over the past two years have gotten crushed by these high interest rates. We’re set on bringing interest rates down,” Bessent claimed in a televised interview.
Trump’s tariff proposals, including a 125% tax on Chinese imports, are projected to impact the US economy substantially. According to a Tax Foundation study published on April 11, 2025, these tariffs could reduce US GDP by 1.3% in the long run.
The study also estimates tariffs will amount to an average tax increase of $1,300 per US household in 2025. This adds pressure on consumers already grappling with inflationary concerns.
Combined with foreign retaliation affecting $330 billion of US exports, the overall GDP reduction could reach 1.0%. This highlights the economic challenges the administration anticipates in the coming year.
Trump Administration Prepares For 2026 Economic Recovery
This report comes a month after Bessent presented Fed Chair Jerome Powell as a significant obstacle. He alluded that Powell impeded the Trump administration’s determination to lower interest rates.
Indeed, the Federal Open Market Committee (FOMC), led by Powell, has rejected interest rate cuts. They maintain this stance until they are comfortable with inflation cooling.
The Fed also made significant downward revisions to its 2025 economic projections. They painted a picture of weaker growth and persistent inflation.
According to economists, the Trump Administration is bracing for “economic weakness” in 2025 due to the tariffs. However, it sees 2026 as a year of recovery through monetary policy adjustments.
“This sets up perfectly for 2026 to be the year of interest rate cuts and economic stimulus, with the newly appointed Fed Chair,” The Kobeissi Letter said.
Therefore, the timing of Powell’s replacement aligns with these economic projections. A new Fed Chair, potentially more aligned with Trump’s economic agenda, could facilitate interest rate cuts and stimulus to counteract the tariff-induced slowdown.
Jerome Powell has served as Fed Chair since 2018. He has maneuvered a complex economic environment, which included high inflation and the post-pandemic recovery.
His second term, confirmed in May 2022, has been characterized by efforts to balance the Fed’s dual mandate of stable prices and full employment. However, this has been met with criticism, including from President Trump, for not being accommodative enough.
“The Fed would be much better off cutting rates as US tariffs start to transition (ease) their way into the economy. Do the right thing,” Trump shared on Truth Social.
The early search for his successor indicates the administration’s desire for a Fed Chair who might be more amenable to its policy goals.
