Trump's Ongoing Verbal Assault on the Fed Chair

President Donald Trump is ramping up his attacks on Federal Reserve Chair Jerome Powell, criticizing the Fed’s reluctance to cut interest rates further. This ongoing feud is shaking financial markets, igniting fears that Trump may attempt to remove Powell altogether.

Can Trump Actually Fire Powell?

The big question swirling around this drama is whether Trump has the legal authority to fire the Fed chair. According to the Federal Reserve Act of 1913, governors can only be dismissed 'for cause,' typically interpreted as misconduct rather than mere policy disagreements. However, the law does not clearly limit the removal of the Fed chair, creating a gray area that might embolden Trump.

Exploring Uncharted Territory

Historically, no president has ever attempted to fire a Fed chief, meaning there is no legal precedent. Ongoing lawsuits related to Trump's past firing decisions are currently wending their way through the courts, potentially influencing the outcome of any attempt to remove Powell.

What Would Trump's Move Mean?

If Trump were to attempt to fire Powell, the implications could vary significantly based on which role he targets. Powell serves multiple roles: as chair of the Fed, a member of the Board of Governors, and the head of the interest-rate-setting Federal Open Market Committee (FOMC).

Could Trump Remove Powell Only as Fed Chair?

If Trump tried to oust Powell just as chair, Powell would still remain a governor until January 2028. Trump’s options for appointing a new chair would be limited, as he could only nominate someone from the current governors—who he himself appointed, both of whom support Fed independence.

What About the FOMC Position?

Trump lacks direct control over who leads the FOMC, as the chairman is elected by the FOMC members. Although tradition usually sees the Fed chair taking the helm, there’s nothing stopping them from electing another member, which could include Powell if he remains.

The Nuclear Option: Firing Powell as a Governor

The most significant impact would come if Trump managed to remove Powell as a governor. This move could not only create vacancies on the board but also allow Trump to reshape the leadership to align with his policies.

Could Powell Mount a Legal Challenge?

Should Trump proceed, Powell would likely have grounds to challenge his dismissal in federal court. Despite this being financially burdensome, Powell, who is wealthy from his past career in finance, has repeatedly argued that his removal is not within the law.

Will the Firestorm Actually Happen?

Recent reports indicate that Trump has considered replacing Powell with Kevin Warsh, a former Fed governor. However, advice suggests that letting Powell serve until the end of his term in May 2026 might be more prudent. The White House economic advisor is also reviewing options to assess the potential fallout.