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President Donald Trump may have thought highly of Federal Reserve Chair Jerome Powell when he nominated him to head the central bank in 2017 during his first term as president, but no more.
In recent weeks, Trump has been vocal — and angry — about the Fed’s refusal to lower interest rates; on Monday, he went nuclear, calling Powell “a major loser” and “Mr. Too Late” in a scathing Truth Social post.
Just how important is the central bank’s independence?
Following Trump’s post, stocks plunged, the dollar continued to slide against foreign currencies, and treasury bond yields rose. Investors were already spooked by Trump’s remarks last week that Powell should be fired — and then by comments a day later from Kevin Hassett, the director of the White House National Economic Council, who said the administration was studying whether it could dump Powell.
The consensus from economists and financial experts around the world has long been that central banks should be independent and free from political considerations to set monetary policies that will promote long-term stability, not short-term political gains.
The Federal Reserve is charged with promoting maximum employment and stable prices. Because its independence is guaranteed by law, the Fed can set interest rates without interference from the president or Congress.
Can Trump fire Powell?
The Federal Reserve Act of 1913 states that Fed governors can only be removed by the president before the expiration of their terms “for cause,” defined as “inefficiency, neglect of duty, or malfeasance in office.” In a landmark 1935 case, Humphrey’s Executor v. United States, the Supreme Court ruled that President Franklin Delano Roosevelt couldn’t fire a member of the Federal Trade Commission due to policy disagreements.
“The fundamental necessity of maintaining each of the three general departments of government entirely free from the control or coercive influence, direct or indirect, of either of the others has often been stressed, and is hardly open to serious question,” the court ruled.
While Trump might claim cause if he does try to fire Powell, there’s sure to be a protracted court battle.
How long do Fed chairs serve?
The president nominates a Fed chair for a four-year term. Trump nominated Powell, then a Fed governor, as chair in 2017. President Joe Biden then renominated Powell, and he was confirmed by Congress on May 12, 2022.
That means Powell can serve in his post until May 12, 2026.
What has Powell said?
After the November election, Powell said that he plans to fill out his term and wouldn’t step down — even if the president asked him to. Powell emphasized that it’s unlawful for presidents to fire or demote the Fed chair.
What has Trump said?
In an April 17 meeting with Italian Prime Minister Giorgia Meloni, Trump said of Powell, “If I want him out, he’ll be out of there real fast, believe me.” This followed a social media post in which he wrote, “Powell’s termination cannot come fast enough!”
Last week, the Wall Street Journal quoted unnamed sources as saying that Trump has, for months, privately discussed firing Powell and replacing him with former Fed governor Kevin Warsh.
What are others saying?
Even some Republicans are defending Powell’s right to remain in his post.
On NBC’s (CMCSA+1.99%) Meet the Press on Sunday, Republican Sen. John Kennedy of Louisiana said, “I don’t think the president, any president, has the right to remove the Federal Reserve chairman,” adding that “the Federal Reserve ought to be independent.”
And the Wall Street Journal (NWSA+0.71%) reported that even Warsh advised Trump against trying to fire Powell, arguing that the president should let Powell complete his term without interference.