President Trump is signaling, as only he can, that it's time for Federal Reserve Chairman Jerome Powell, to go.
This is one of his better ideas, and he has had many good ones.
???? JUST IN: President Trump calls Fed Chair Jerome Powell “one of my worst appointments” and a “numbskull”
— Eric Daugherty (@EricLDaugh) July 18, 2025
“I can’t tell you how dumb Too Late is!” pic.twitter.com/bpypbP580T
The issue in front of the news, according to the Wall Street Journal, is the Federal Reserve's mismanagement of the money supply, which has left the Fed itself in the hole for the first time in its history:
At issue is the central bank’s practice of paying interest to commercial banks on the reserve balances they deposit at the Federal Reserve. Sen. Ted Cruz (R., Texas) tried to launch a debate about this earlier in June when he suggested that if Congress barred these interest payments in its budget bill, it would save the government $1 trillion over 10 years.
Many voters might be surprised to discover the Fed is making such large payments to banks. When Congress in 2006 authorized the central bank to pay interest on reserve balances as of 2011, it seemed like an academic matter. The theory was that to satisfy regulatory reserve requirements, banks must forgo the income they otherwise would earn from that capital. That lost revenue constitutes a form of tax, and the Fed could soften the blow by paying interest on those reserve balances.
The stakes appeared low. Before the 2007-08 panic, reserve balances tended to be relatively small, and one could argue that the “tax” was a fair price for banks to pay for access to Fed support in times of trouble.
But once the central bank started inflating its balance sheet in 2008 with emergency lending and then asset purchases under quantitative easing, the interest-on-reserves question became more pressing. As the Fed accumulated Treasurys and mortgage-backed securities on the asset side of its balance sheet, it needed to create offsetting liabilities. The easiest way to do this was to increase banks’ reserve deposits: The Fed would buy Treasurys from banks, and then banks would hold reserve balances instead of Treasurys as safe assets.
That was how the Fed was able to print up so much money without creating hyperinflation, just Bidenflation, which was supposed to be better -- they parked money in the banks as reserves and shelled out a trillion dollars in interest rather than let it float around in the system and making the U.S. another Argentina. They outdid Argentina on the money-printing, and got away with it, at least for a time.
In a letter to the editor in response to this piece that appeared in the Wall Street Journal, first-rate monetary economist Judy Shelton, who was a student of Milton Friedman and now has been named as a potential successor to Powell, wrote:
Mr. Sternberg astutely reports on a knotty problem at the Federal Reserve, and kudos to Sen. Cruz for having the courage to challenge the central bank. If the American people understood that the Fed’s main tool for conducting monetary policy is to transfer the interest-rate payments it receives on its own holdings of U.S. government debt securities to private commercial banks as compensation for keeping cash parked at the central bank, it would provoke outrage—especially since those funds would otherwise provide revenues to the federal budget. The fact that foreign banks with U.S. branches currently receive nearly 44% of the money the Fed pays to banks as interest on their reserve balances should get Congress’s attention.
That was how they controlled the money supply, by parking money and paying banks big interest on it, which as Shelton notes, could have actually been spent on something useful.
The impact of that, as President Trump has noted, is sky-high interest rates, the kind that make it impossible for young people to buy homes. Issues & Insights describes the problem here:
At issue currently is whether a politicized Fed has now become hostile to the admittedly mercurial Trump, who feels the Fed’s tight interest-rate policy is holding the economy back.
It is. Take one very important sector, which desperately needs lower interest rates: housing. Annual sales rates for existing homes fell to 3.67 million in May of this year, only slightly above the 3.45 million level at the depths of the financial crisis in 2010.
Why? With average mortgage rates at about 6.83%, buyers can’t afford payments. But as a Morgan Stanley survey in March noted, “91% of people considering buying a home in the next six months would be likely to do so if mortgage rates were to fall to 5.5%. Based on the survey, Millennials and Gen Z are likely to lead the next wave of homebuying.”
Yet, despite a continuing decline in inflation, the Fed won’t cut rates. Funny, when the Democratic Congress and President Joe Biden locked down the economy and spent nearly $6 trillion on COVID, setting off an inflationary spiral, the Fed did little to stop them.
Smell the politics? The Fed is not supposed to the politicized, but clearly it is.
It points to a deeper issue: The Fed under Powell no longer relies on the classic monetary indicator, M2, to set policy.
Johns Hopkins University Professor of Economics, Steve Hanke, a leading monetary expert, sent American Thinker this note a few months back in response to our queries, explaining the Fed's failure to follow M2, as the only reliable measure of inflation, relying instead on Joe Biden's politicized data indicators, e.g., the always-revised U.S. Employment report which Biden used to claim the economy was great, and many others, too, to make monetary policy. This is why they have called inflation wrong for 44 times in the last four years.
If the Fed was paying attention to changes in the economy’s fuel, the money supply, it would have realized long ago that the economy was running on fumes. The stock of money (M2) is actually lower that it was in July 2022. That type of contraction has only occurred four times since the founding of the Fed in 1913, and on each of those occasions, the U.S. experienced recessions. That’s why, John Greenwood and I think a recession is baked in the cake.
Contrary to what the Fed’s lackeys in the press tell us, Chairman Powell should not have a halo placed on his head, but a pointed cap. The wild swings in the money supply in the 2020-24 period and the resulting swings in inflation make this period one of the worst in the Fed’s history. If the Fed would have been keeping its eye on the only thing that counts, it would have kept the annual growth rate in the money supply (M2) stable at about 6%, a rate consistent with hitting its inflation target of 2% per year. Accompanying the Fed's fealty to rigged data was a wokification of the Fed, actually relying on DEI to make monetary policy.
Politics, politic, politics, you can smell it all over with this Federal Reserve undere Powell. Hanke is right -- the Fed doesn't even do its real job as a result, and that is the biggest issue.
And not surprisingly, it happened as the Fed was going woke, embracing DEI, spending $2.5 billion on a headquarters revamp, that Powell lied to Congress about, and donating to Democrats,
As Issues & Insights has noted:
As for Trump “not politicizing” the Fed, please. “Federal Reserve employees donated 92% of their $700k in political contributions to Democrats during the 2024 cycle,” noted our friend economist Stephen Moore of the Committee to Unleash Prosperity. “Does that sound ‘nonpartisan’ to you?”
Funny how that happens.
It all adds up to one thing: Powell has got to go. The U.S. has elected Trump to get rid of deep-staters like this. Get that guy out of there.