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On Monday, U.S. President Donald Trump intensified his criticisms of Federal Reserve Chair Jerome Powell, targeting the Fed’s decision to refrain from further cutting interest rates. On social media, the president specifically called out Powell, claiming a slowdown in the U.S. economy is imminent unless “Mr. Too Late, a major loser,” acts to lower the rates immediately.
This outburst follows a prior statement where Trump remarked that Powell’s dismissal “cannot come fast enough,” shared in another Truth Social post last week.
The Federal Reserve, serving as the U.S. government’s central bank, operates independently; however, Trump has consistently applied pressure for cuts in interest rates. Economists are voicing concerns that these mounting attacks on Powell could indicate an intention on Trump’s part to potentially seek to remove him from his position, which may have contributed to the recent downturn in financial markets.
On the most recent trading day, the S&P 500 fell by 2.4%, the Dow Jones Industrial Average decreased by 2.5%, and the Nasdaq slipped by 2.6%, marking a volatile day on Wall Street.
WATCH | Trump hints at the possibility of removing U.S. Fed Chair Jerome Powell:
Trump hints at the possibility of removing U.S. Fed Chair Jerome Powell
During a meeting with Italian Prime Minister Giorgia Meloni, Trump reaffirmed his position on Powell, stating, “Oh, he’ll leave … If I ask him to, he’ll be out of there,” but did not elaborate when asked if he would indeed move to dismiss Powell.
A potential attempt by Trump to terminate Powell could sow significant uncertainty in the financial markets. While lower interest rates are generally favored by Wall Street for their ability to enhance stock prices, concerns are mounting that diminishing the Fed’s independence could thwart its effectiveness in managing inflation. This may jeopardize the U.S.’s standing as a secure haven for global investments.
Powell was initially nominated by Trump in 2017 and was later reappointed in 2021 during President Biden’s term; his current chairmanship is slated to last until May 2026.
Can Trump fire Powell?
The extent of Trump’s power to dismiss Powell remains ambiguous.
The Federal Reserve Act of 1913, which established the Fed, asserts that appointees to its Board of Governors, who are selected by the president and confirmed by the Senate, can only be removed “for cause,” a term traditionally understood to signify misconduct rather than mere policy disagreements.
Interestingly, the legislation does not explicitly address limits on the removal of the Fed chair, who holds one of the seven governor positions.
Has this happened before?
No president has attempted to fire a Fed chair, creating a unique legal context for such an action.
While there are ongoing lawsuits concerning unrelated dismissals by Trump, these cases are being monitored for their implications regarding his authority over the Fed.
One prominent case is pending before the Supreme Court, and any potential bid to remove Powell would likely culminate there.
What would firing Powell mean in practical terms?
The implications of such a dismissal would depend largely on how Trump elects to proceed with removing Powell.
Powell occupies three key roles: as the head of the Federal Reserve System, as a member of the Board of Governors, and as the chair of the Federal Open Market Committee (FOMC), which is responsible for setting interest rates.
Can Trump oust him just as Fed chair?
If Trump aimed to depose Powell solely from his chair position, Powell could continue to serve as a governor until January 2028, when his term concludes. The next available board position does not arise until January 2026, leaving Trump with the option to appoint one of the existing governors to chair the Fed assuming he were to vacate that office.
Among the six other governors, Trump appointed Christopher Waller and Michelle Bowman during his first term. Trump has recently nominated Bowman as vice chair for bank supervision.
Both Waller and Bowman, like Powell, have acknowledged the significance of maintaining the Fed’s independence, creating uncertainty around whether they would implement the immediate rate adjustments Trump desires.
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What about removing him as FOMC head?
Trump lacks direct authority over the selection of the FOMC chair, which is decided by a vote among the 12-member panel comprising the seven governors and four rotating regional bank presidents. Traditionally, the FOMC appoints the Fed chair as its leader, and the New York Fed president typically serves as vice chair. However, the panel does possess the flexibility to select any member, including Powell, should he still hold a governorship.
And what about firing him as a governor?
Removing Powell from his position as a governor would have far-reaching consequences.
If such a dismissal were legally valid, it would result in both a governor vacancy and a chair vacancy that Trump could fill with his preferred appointments. This could also pave the way for him to dismiss additional governors to reshape the Fed’s leadership to align with his policy interests.
Would Powell be able to challenge it?
If this scenario were to unfold, Powell would have the grounds to contest his termination in federal court, although he would need to finance this challenge independently. With his background in law and a substantial personal fortune, he appears well-positioned to mount such a legal effort.
When previously asked whether he would resign at Trump’s request, Powell firmly stated, “No,” reinforcing his belief that the law does not permit his removal over policy disagreements. He has consistently contended that his dismissal is not legally warranted, and he expressed doubt that issues related to Trump’s other personnel decisions would extend to the Fed.
Will it actually happen?
According to a recent report by the Wall Street Journal, Trump has been considering the possibility of firing Powell and replacing him with Kevin Warsh, a former Fed governor. Warsh has reportedly advised Trump against such a move, suggesting instead that the president should allow Powell to complete his term, scheduled to end in May 2026.
Additional insights from White House economic adviser Kevin Hassett indicate that discussions regarding Powell’s future are ongoing within the administration.
Source
www.cbc.ca