Could Trump fire Powell? What economic risks would that bring?

Author: Nik Popli, Time; Translator: Tao Zhu, Golden Finance

The Federal Reserve has long prided itself on its independence from political pressure. But that tradition is coming under new pressure as President Donald Trump steps up his attacks on Fed Chairman Jerome Powell for refusing to cut interest rates.

Trump told reporters in the Oval Office on Thursday: "If I wanted him out, he would be gone quickly, believe me." The president further emphasized on his social media platform Truth Social: "Powell's firing came too slowly!" he wrote.

President Donald Trump announces his nomination as the next chairman of the Federal Reserve with Federal Reserve Board member Jerome Powell in the Rose Garden of the White House in Washington, DC, Thursday, November 2, 2017. Jabin Botsford — The Washington Post via Getty Images

The attack is one of Trump’s most pointed moves yet to undermine the political independence of an institution that has historically been independent of the White House and ensures stable management of the economy. Powell spoke at the Economic Club of Chicago on Wednesday, opposing political interference and saying the Fed will make decisions based solely on what is best for the American people.

“That’s the only thing we do,” Powell said. “We will never be influenced by any political pressure … Our independence is a matter of law.” Powell added that Fed governors “cannot be removed except for cause” and that “our terms are so long that they appear to be unlimited.”

Still, that hasn’t stopped Trump from trying to fire the Fed chairman. “I don’t think he’s doing a good job,” the president said Thursday, claiming Powell cut rates “too late.” Powell was first nominated by Trump to be Fed chair in 2017 and was renominated by President Joe Biden in 2022. His current term as chair is set to extend until May 2026.

While previous presidents have expressed displeasure when the Fed’s rate decisions conflict with its policy goals, Trump’s comments have reignited concerns about political interference in monetary policy, a development that could roil markets and undermine the central bank’s credibility.

“The Fed needs public confidence,” said Sarah Binder, a Fed expert and senior fellow at the Brookings Institution. “But if the president tries to remove Powell from his position, that just adds uncertainty that markets are not very happy about.”

Here are the limits on the president’s power over the Fed and the risks to the economy.

Can Trump fire Powell?

Legally, the answer is complex and untested. No Fed chair has ever been removed by a president.

The Federal Reserve Act allows for the firing of board members, including the chair, “for cause.” But historically, that has been interpreted as misconduct or incompetence, not policy disagreements. “Courts generally don’t consider disagreements over rate setting as ‘good cause,’ ” Binder said.

While Trump and his allies have raised the possibility of firing Powell since his first term, they have not done so, likely because of the uncertainty of the legal landscape and the political backlash that would generate.

Powell himself has made clear he will not leave quietly. Asked in November if he would resign if Trump asked him to, he responded tersely, “No.”

Still, the Trump administration appears to be laying the groundwork for a potential confrontation. Treasury Secretary Scott Bessent recently told Bloomberg that he expects to begin interviewing possible successors for Powell in the fall.

Trump’s push to remove Powell comes as the Supreme Court is hearing a case involving the president’s power to fire top officials of independent agencies. While that case involves the National Labor Relations Board and the Merit Systems Protection Board, its implications could be much broader. If the court sides with the Trump administration, it could be interpreted as a signal of how it would resolve Trump’s legal conflicts in wanting to get rid of Powell, though the Fed has said it does not believe that challenge applies.

At the heart of the debate is a nearly century-old legal precedent: Humphrey Executors v. United States, a 1935 Supreme Court decision that limited a president’s power to remove the head of an independent agency without cause. The ruling has long protected Fed chairs from political dismissals, but it may soon be tested by the conservative Supreme Court.

Economic Risks

Trump accused Powell of failing to act aggressively enough to support economic growth, saying the Fed chairman was “playing politics” by keeping interest rates steady. But central bankers and many economists argue the opposite: An independent Fed is essential to controlling inflation and guiding the economy, and capitulating to political demands could damage the economy and global trust in U.S. institutions.

Powell insisted that the Fed's decisions are "based solely on what's best for all Americans." In his speech Wednesday, he warned that Trump's sweeping tariffs could put the U.S. economy in a "challenging situation" with rising inflation and slowing growth - conditions that would complicate the Fed's dual mandate of price stability and full employment. Trump's tariffs have increased the cost of many imported goods, squeezed household budgets and raised concerns that the policy is slowing the economy at a time when inflation remains above the Fed's 2% target.

Meanwhile, the president called for an immediate rate cut, noting that the European Central Bank cut rates on Thursday.

The Yale Budget Lab estimates that the inflationary effect of Trump's tariffs is equivalent to an effective tax of $4,900 per household. Meanwhile, long-term interest rates have surged, making borrowing more expensive for homebuyers, businesses and consumers.

Who is Jerome Powell?

Powell, 71, is serving his second term as chairman of the Federal Reserve, the nation's most powerful economic policymaking body. A Republican, he was a former investment banker who was appointed to the Fed’s board of governors by President Barack Obama in 2012 and promoted to chairman by Trump in 2017. Biden later reappointed him, a sign of broad bipartisan trust in his management of the central bank.

During Powell’s tenure, the Fed has faced a series of economic shocks, from the pandemic-induced recession to the worst inflation surge in four decades. Under his leadership, the central bank cut interest rates to near zero in 2020 to stabilize the economy during the COVID-19 pandemic, and then raised them starting in 2022 to curb inflation that had soared to more than 9%.

While inflation cooled in March to its lowest level in six months, the path has been bumpy, and Powell has faced criticism from both the left and the right about whether the Fed has acted too slowly or too aggressively.

“Powell’s approval ratings are probably down significantly from what they were during Trump’s first term when the economy was really doing well,” Binder said. “A lot of people are probably going to say the Fed made a big policy mistake by acting too late to tamp down inflation in 2022-23. The question now is, who’s going to stand up for the Fed?”