Trump Continues Criticism of Fed Chair Powell

(Reuters) – President Donald Trump on Monday continued his verbal assault on Federal Reserve Chair Jerome Powell due to the Fed’s decision not to cut interest rates further. This criticism has caused financial markets to grow increasingly anxious about the potential for Trump to attempt to fire the U.S. central bank chief.

Can Trump Fire Powell?

It remains unclear if Trump has the authority to do so. The Federal Reserve Act of 1913 establishes that board members can only be removed for “cause,” which has traditionally meant misconduct rather than disagreement over policy. The law does not specifically prevent the removal of the Fed chair from this stipulation; however, Powell is one of the seven governors who serve staggered 14-year terms.

Is This Uncharted Territory?

There is no legal precedent for firing a Fed chief, as no president has ever attempted it before. There are ongoing lawsuits regarding unrelated firings by Trump that may set precedents concerning presidential powers. This issue may eventually reach the Supreme Court, which would likely weigh in on any attempt to dismiss Powell.

Implications of Firing Powell

The implications of a potential firing depend on how Trump might choose to proceed. Powell performs three roles: chair of the Federal Reserve System, member of the Board of Governors, and chair of the Federal Open Market Committee (FOMC).

Can Trump Remove Him as Fed Chair?

If Trump were to remove Powell solely as Fed chair, Powell could still serve as a governor until January 2028. The next board vacancy does not arise until January 2026, leaving Trump to nominate one of the current governors to take over as chair. Two of those were appointed by Trump in his first term and share similar views on independence, making it unclear if they would adopt the desired aggressive rate cuts.

What About the FOMC Head?

Trump does not have direct control over who heads the FOMC, as the chair is chosen annually by a panel of 12 members, which includes the seven governors and the president of the New York Fed. While the FOMC traditionally selects the Fed chair as its head, any member can technically serve, including Powell if he remains a governor.

Or as a Governor?

Dismissing Powell as a governor would have the most significant impact, as it would create two vacancies (both chair and board) for Trump to fill with nominees of his choice. This could also permit him to remove other governors, reshaping Fed leadership to better align with his preferences.

Could Powell Challenge a Dismissal?

If Powell were to be dismissed, he could challenge the action in federal court, although he would need to finance this personally. Powell, who has extensive personal wealth, has expressed confidence in the legality of his position and has stated that ongoing litigation over other firings will not apply to the Fed.

Will It Actually Happen?

Recent reports from the Wall Street Journal indicated that Trump has discussed the possibility of replacing Powell with Kevin Warsh, a former Fed governor. Warsh has advised against this move, suggesting Trump allow Powell to serve until the end of his term in May 2026. Additionally, White House economic adviser Kevin Hassett, viewed as a potential replacement, affirmed that the issue is being studied within the administration.