Can Trump really fire Powell? What economic risks would it bring?

The Federal Reserve (FED) has long prided itself on its independence from political pressure. However, this tradition is facing new strains as President Donald Trump intensifies his attacks on Chairman Jerome Powell for refusing to cut interest rates.

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

On Thursday, November 2, 2017, President Donald Trump announced his nomination of Jerome Powell as the next Chairman of the Federal Reserve (FED) alongside members of the Federal Reserve Board in the Rose Garden of the White House in Washington, D.C. Jabin Botsford – The Washington Post via Getty Images

This attack is one of Trump's sharpest moves to date, aimed at undermining the political independence of an institution that has historically been free from White House influence and ensures stable economic management. Powell spoke Wednesday at the Chicago Economic Club, opposing political interference, and stated that the Federal Reserve will make decisions based entirely on what is most beneficial for the American people.

"This is the only thing we have to do," Powell said. "We will never be influenced by any political pressure... our independence is a legal issue." Powell added that the members of the Federal Reserve "cannot be removed unless there is a reason," and that "our terms are long, seemingly unlimited."

Nevertheless, this did not stop Trump from trying to fire the chair of The Federal Reserve (FED). The president stated on Thursday, "I don't think he's doing a good job," and claimed that Powell lowered interest rates "too late." Powell was first nominated by Trump as the chair of The Federal Reserve (FED) in 2017 and was re-nominated by President Joe Biden in 2022. His current chair term will extend until May 2026.

Although previous presidents have expressed dissatisfaction with the Federal Reserve's interest rate decisions conflicting with its policy goals, Trump's remarks have once again raised concerns about political interference in monetary policy, a development that could disrupt markets and undermine the central bank's credibility.

"The Federal Reserve needs public confidence," said Federal Reserve expert and senior fellow at the Brookings Institution Sarah Binder (. "But if the president tries to push Powell out of his position, it will only increase the uncertainty that the market is not too happy about."

The following is about the limitations on the President's power over the Federal Reserve (FED) and the risks facing the economy.

Can Trump fire Powell?

From a legal perspective, the answer is complex and untested. The chairman of The Federal Reserve (FED) has never been dismissed by the president.

The "Federal Reserve Act" allows for the dismissal of board members, including the chairman, "for cause." However, historically, this has been interpreted as misconduct or incompetence, rather than policy disagreements. "Courts generally do not view disagreements over interest rate setting as 'just cause,'" Bind said.

Despite the fact that Trump and his allies have suggested the possibility of firing him since Powell's first term, they have not done so, likely due to the uncertainty of the legal environment and the political backlash that would ensue.

Powell himself has also made it clear that he will not leave quietly. Last November, when asked if he would resign if Trump asked him to, he succinctly replied, "No."

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

Mr. Trump's push to remove Mr. Powell comes as the Supreme Court is hearing a case involving the president's power to dismiss senior officials of independent agencies. While the case involves the National Labor Relations Board and the Merit System Protection Board, its impact is likely to be more widespread. If the court sides with the Trump administration, this could be interpreted as a signal of how it will resolve Trump's legal conflict that wants to get out of Powell, although the Fed says it doesn't think the challenge applies.

The core of this debate is a legal precedent nearly a hundred years old: Humphrey's Executor v. United States, a ruling by the Supreme Court in 1935 that limited the president's power to arbitrarily remove leaders of independent agencies. This ruling has long protected the chair of the Federal Reserve from political dismissal, but it may soon face scrutiny from the conservative Supreme Court.

Economic Risks

Trump accused Powell of failing to take sufficiently aggressive action to support economic growth, stating that the Federal Reserve chairman is "playing politics" by keeping interest rates steady. However, the central bank president and many economists hold an opposing view: an independent Federal Reserve is crucial for controlling inflation and guiding the economy, while yielding to political demands could undermine the economy and global trust in U.S. institutions.

Powell insisted that the Federal Reserve's decision is "completely based on the principle that is most beneficial to all Americans." In his speech on Wednesday, he warned that Trump's comprehensive tariff measures could put the U.S. economy in a "challenging situation," with rising inflation and slowing economic growth—conditions that would complicate the Federal Reserve's dual mandate of achieving price stability and full employment. Trump's tariffs have increased the costs of many imported goods, squeezing household budgets and raising concerns about policies leading to an economic slowdown while inflation rates remain above the Federal Reserve's 2% target.

At the same time, the president called for an immediate interest rate cut and noted that the European Central Bank had cut rates on Thursday.

The Yale University Budget Lab estimates that the inflationary effect of Trump’s tariffs is equivalent to an actual tax payment of $4,900 for each household. Meanwhile, long-term interest rates have skyrocketed, leading to higher borrowing costs for homebuyers, businesses, and consumers.

Who is Jerome Powell

Powell, 71, is currently serving his second term as chairman of the most powerful economic policy-making institution in the United States, the Federal Reserve (FED). As a Republican, he was an investment banker and was appointed to the Federal Reserve Board by President Barack Obama in 2012, and elevated to chairman by Trump in 2017. Biden later reappointed him, indicating broad bipartisan trust in his management of the central bank.

During Powell's tenure, The Federal Reserve (FED) faced a series of economic shocks, from the recession triggered by the pandemic to the most severe inflation surge in forty years. Under his leadership, the central bank lowered interest rates to near zero in 2020 to stabilize the economy during the COVID-19 pandemic, and then began to raise rates starting in 2022 to curb inflation that soared above 9%.

Despite the cooling of inflation in March, reaching its lowest level in six months, the inflation trend is not smooth, and Powell faces criticism from both the left and the right, questioning whether the Federal Reserve's actions are too slow or too aggressive.

Binder said: "Compared to the strong economic performance during Trump's first term, Powell's approval ratings may have dropped significantly." "Many people might say that the Federal Reserve's actions to curb inflation in 2022-23 were too late, and they made a major policy mistake. The question now is, who will stand up for the Federal Reserve?"