File picture of U.S. President Donald Trump U.S. Federal Reserve chief Jerome Powell during Trump’s first term as President
| Photo Credit: Reuters

Donald Trump’s simmering discontent with the U.S. Federal Reserve boiled over this week, with the president threatening to take the unprecedented step of ousting the head of the fiercely independent central bank.

Mr. Trump has repeatedly said he wants rate cuts now to help stimulate economic growth as he rolls out his tariff plans, and has threatened to fire Fed Chair Jerome Powell if he does not comply, putting the bank and the White House on a collision course that analysts warn could destabilise U.S. financial markets.

“If I want him out, he’ll be out of there real fast, believe me,” Mr. Trump said Thursday, referring to Mr. Powell, whose second four-year stint as Fed chair ends in May 2026.

Mr. Powell has said he has no plans to step down early, adding this week that he considers the bank’s independence over monetary policy to be a “matter of law.”

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“Clearly, the fact that the Fed chairman feels that he has to address it means that they are serious,” KPMG chief economist Diane Swonk told AFP, referring to the White House.

Stephanie Roth, chief economist at Wolfe Research, said she thinks “they will come into conflict,” but does not think “that the Fed is going to succumb to the political pressure.”

Most economists agree that the administration’s tariff plans — which include a 10% “baseline” rate on imports from most countries — will put upward pressure on prices and cool economic growth, at least in the short term.

That would keep inflation well away from the Fed’s long-term target of 2%, and likely prevent policymakers from cutting rates in the next few months.

“They’re not going to react because Trump posted that they should be cutting,” Ms. Roth said in an interview, adding that doing so would be “a recipe for a disaster” for the U.S. economy.

Fed independence ‘absolutely critical’

Many legal scholars say the U.S. president does not have the power to fire the Fed chair or any of his colleagues on the bank’s 19-person rate-setting committee for any reason but cause.

The Fed system, created more than a century ago, is also designed to insulate the U.S. central bank from political interference.

“Independence is absolutely critical for the Fed,” said Ms. Roth. “Countries that do not have independent central banks have currencies that are notably weaker and interest rates that are notably higher.”

Moody’s Analytics chief economist Mark Zandi told AFP that “we’ve had strong evidence that impairing central bank independence is a really bad idea.”

‘Can’t control the bond market’

One serious threat to the Fed’s independence comes from an ongoing case in which the Trump administration has indicated it will seek to challenge a 1935 Supreme Court decision denying the U.S. president the right to fire the heads of independent government agencies.

The case could have serious ramifications for the Fed, given its status as an independent agency whose leadership believes they cannot currently be fired by the president for any reason but cause.

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But even if the Trump administration succeeds in court, it may soon run into the ultimate guardrail of Fed independence: The bond markets.

During the recent market turbulence unleashed by Mr. Trump’s tariff plans, U.S. government bond yields surged and the dollar fell, signaling that investors may not see the United States as the safe haven investment it once was.

Faced with the sharp rise in U.S. Treasury yields, the Trump administration paused its plans for higher tariffs against dozens of countries, a move that helped calm the financial markets.

If investors believed the Fed’s independence to tackle inflation was compromised, that would likely push up the yields on long-dated government bonds on the assumption that long-term inflation would be higher, and put pressure on the administration.

“You can’t control the bond market. And that’s the moral of the story,” said Ms. Swonk. “And that’s why you want an independent Fed.”

In this photo taken on September 23, 2019 shows Sri Lankan military personnel jumping from a helicopter as they take part in a training exercise on the eastern coast of Trincomalee. Image used for representative purpose ony.
| Photo Credit: AFP

A plan to hold a military exercise between the navies of Pakistan and Sri Lanka in the strategic waters of Trincomalee was shelved a few weeks back, after New Delhi conveyed its concerns to Colombo over the proposed drills, multiple sources have said.

Trincomalee is situated on Sri Lanka’s northeastern coast and is considered a significant hub in the Indian Ocean region, especially for India’s maritime security interests.

The sources said the Navies of the two countries had planned to carry out the exercise off Trincomalee, in line with their regular engagements.

The plan did not go through after India apprised its apprehensions over the exercise to the Sri Lankan side, they told PTI.

The joint exercise was planned weeks ahead of Prime Minister Narendra Modi’s visit to Colombo, the sources said.

The Navies of Pakistan and Sri Lanka are known to have cordial relations and warships from both countries visit each other’s ports regularly, besides carrying out wargames.

There was no official word on the plan either from Sri Lanka or Pakistan.

Military experts, explaining Trincomalee’s strategic importance for India, said it has the potential to dominate the Bay of Bengal and much of the northeast Indian Ocean, and New Delhi was right in expressing concerns over the proposed exercise.

The Pakistani Navy operates in close cooperation with China’s PLA Navy and New Delhi has reasons to have concerns over any visit by Pakistani warships to Trincomalee, said one of the experts.

The docking of Chinese missile and satellite tracking ship “Yuan Wang” at the Hambantota port in August 2022 had triggered a diplomatic row between India and Sri Lanka.

Another Chinese warship docked at the Colombo port in August 2023 had also triggered some concerns in New Delhi.

In the last few years, India has been focusing on extending assistance to Sri Lanka in developing Trincomalee’s energy infrastructure.

India is especially looking at revitalising the oil tank farms in Trincomalee that has one of the finest natural harbours in the world.

During Mr. Modi’s visit to Colombo this month, India, Sri Lanka and the United Arab Emirates (UAE) firmed up an ambitious agreement to develop Trincomalee as an “energy hub”, with a broader aim to help the island nation achieve energy security and fuel its economic growth.

Significantly, India and Sri Lanka also signed a defence pact to institutionalise military cooperation following talks between Mr. Modi and Sri Lankan President Anura Kumara Dissanayake.

The agreement on defence cooperation signals a major attempt to boost the India-Sri Lanka defence ties, nearly four decades after the Indian Peace Keeping Force’s intervention in the island nation strained the relations.

India has been expanding its overall strategic ties with Sri Lanka amid concerns over China’s attempts to increase influence over the island nation.

Three years back, India handed over a Dornier maritime surveillance aircraft to Sri Lanka.

The aircraft was given to Sri Lanka from the inventory of the Indian Navy to help the country meet its immediate security requirement.