🌊 The Firing of Jerome Powell

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By Max Frost

For months, President Trump has called Jerome Powell “Too Late” – ”Too Late” to raise interest rates when inflation was rising; “Too Late” to cut them after Trump took office. 

Trump wants lower rates to accelerate economic growth and make government borrowing cheaper. Powell’s refusal to go along with this makes him, in Trump’s words, “Truly one of the dumbest, and most destructive, people in Government… the WORST. A real dummy, who’s costing America $Billions!”

The solution, Trump says, is to fire Powell – and on Wednesday, he took a step toward doing just that.

A president has never fired a Fed chair, and it’s unclear if they actually can. The Federal Reserve Act, which established the Federal Reserve and its board, specifies that board members serve 14-year terms “unless sooner removed for cause by the President.” 

This “for cause” clause has long been understood to mean a Fed board member, of which the chairman is one, can only be fired for malfeasance or neglect of duty – not simply for policy disagreements​.

Yet the law does not specifically mention the Fed chair, who the president appoints to a four-year term and can be reappointed. Obama appointed Powell to the Fed Board in 2012, beginning his 14-year board term. Trump then elevated him to chair in 2018, and Biden reappointed him in 2022. His current board and chair terms end in 2026.

So can the president remove the chair? There are two main legal perspectives on this.

One says that the “Chair” is implicitly subject to the same rules as other board members, meaning they can only be removed from their post “for cause”; the other says the law doesn’t mention the chair in order to give the president leeway to demote one without meeting the “cause” threshold.

Beyond the law, the markets are a check against firing a Fed chair: Such a move would likely be seen as undermining the Fed’s independence – a tenet of economic and financial stability. When Trump was threatening to remove Powell in April, market turmoil prompted him to clarify, “I have no intention of firing him.”

Yet Trump has continued to attack Powell in the three months since. Last weekend, Trump’s National Economic Council director said Powell’s removal was “being looked into.” On Wednesday, Trump showed Republican leaders a draft termination letter and asked what they thought. 

“I talked about the concept of firing him. I said, ‘What do you think?’ Almost every one of them said I should,” Trump said. “But,” he added, “I’m more conservative.”  

He continued: “We’re not planning on doing anything. I don’t rule out anything, but I think it’s highly unlikely. Unless he has to leave for fraud.”

The last part – “fraud” – indicates how the president could attempt to oust Powell “for cause.”

Republicans have seized on a $2.5B renovation of the Fed’s headquarters to accuse him of mismanagement and therefore say he’s eligible for firing. The renovation, which began in 2021, is $700M over budget and includes rooftop garden terraces and marble finishings. Some Republicans say it proves Powell is unfit to run the central bank. 

White House budget chief Russ Vought has called for an investigation into whether Powell deceived Congress about the plans, potentially paving the way for his removal.

“This is about the largess and the fact that he has systemically mismanaged the Fed,” Vought said last week, a day after writing a letter to Powell that condemned the project as an “ostentatious overhaul of your Washington, DC headquarters.”

If Trump does decide to fire Powell and use the renovation as “cause,” courts will likely have to decide the validity. In May, the Supreme Court indicated that strict conditions would need to be met to remove the Fed chair: Unlike other federal agencies, it wrote, the Fed “is a uniquely structured, quasi-private entity” subject to different rules. Yet it did not specify what that meant.

As of late Wednesday, Trump appears to be either preparing to fire Powell or engaged in a pressure campaign to get him to lower rates. Whether or not Trump has the right and grounds to fire Powell may not be clear until he does it. 

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—Max and Max