Author: Nik Popli, Time; Translated by: Tao Zhu, Jinse Finance
The Federal Reserve has long prided itself on its independence from political pressure. However, this tradition is facing new stress as President Donald Trump intensifies his attacks on Federal Reserve 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 very quickly, believe me." The president further emphasized on his social media platform Truth Social: "Powell's firing is long overdue!" he wrote.
On Thursday, November 2, 2017, President Donald Trump announced the nomination of Jerome Powell as the next Federal Reserve Chairman alongside Federal Reserve Board members in the Rose Garden of the White House in Washington, D.C. Jabin Botsford - 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 economic stability management. Powell spoke at the Chicago Economic Club on Wednesday, opposing political interference and stating that the Federal Reserve will make decisions entirely based on what is most beneficial to the American people.
"This is the only thing we will do," Powell said. "We will never be influenced by any political pressure... Our independence is a legal matter." Powell added that Federal Reserve board members "cannot be removed without cause" and that "our terms are long and seem almost infinite".
Nevertheless, this has not stopped Trump from attempting to dismiss the Federal Reserve Chairman. The president said on Thursday: "I think he is not doing a good job" and claimed Powell's interest rate cuts were "too late". Powell was first nominated by Trump as Federal Reserve Chairman in 2017 and was renominated by President Joe Biden. His current chairman term will be extended until May 2026.
While previous presidents have expressed dissatisfaction with the Federal Reserve's interest rate decisions conflicting with their policy goals, Trump's remarks have once again raised concerns about political interference in monetary policy, a development that could disrupt markets and damage the central bank's credibility.
"The Federal Reserve needs public confidence," said Sarah Binder, a Federal Reserve expert and senior researcher at the Brookings Institution. "But if the president tries to remove Powell from his position, it will only increase market uncertainty."
Here are the details about the president's limitations on Federal Reserve power and the economic risks.
Can Trump Fire Powell?
Legally, the answer is complex and untested. No Federal Reserve Chairman has ever been dismissed by a president.
The Federal Reserve Act allows dismissal of board members, including the chairman, "for cause". Historically, this has been interpreted as misconduct or incompetence, not policy disagreements. "Courts typically do not view differences in interest rate setting as 'just cause'," Binder said.
Although Trump and his allies have raised the possibility of firing Powell since his first term, they have not done so, possibly due to legal uncertainty and potential political backlash.
Powell himself has clearly stated that he will not quietly step down. In November last year, when asked if he would resign if Trump requested his resignation, he briefly answered: "No."
Nevertheless, the Trump administration seems to be laying the groundwork for a potential confrontation. Treasury Secretary Scott Bessent recently told Bloomberg that he expects to begin interviewing potential successors to Powell in the fall.
As Trump pushes to remove Powell, 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 Systems Protection Board, its impact could be broader. If the court sides with the Trump administration, it could be interpreted as a signal of how it might resolve the legal conflict of Trump wanting to get rid of Powell, although the Federal Reserve states that it does not believe this challenge applies.
At the core of this debate is a legal precedent nearly a century old: the Humphrey's Executor v. United States case, a 1935 Supreme Court ruling that limited the president's power to dismiss leaders of independent agencies without cause. This ruling has long protected Federal Reserve Chairmen from political dismissal but may soon be tested by the conservative Supreme Court.
Economic Risks
Trump accuses Powell of failing to take sufficiently aggressive action to support economic growth, claiming the Federal Reserve Chairman is "playing politics" by maintaining stable interest rates. However, central bank leaders and many economists hold the opposite view: an independent Federal Reserve is crucial for controlling inflation and guiding the economy, and yielding to political demands could damage the economy and global trust in U.S. institutions.
Powell insists that the Federal Reserve's decisions are "completely based on principles most beneficial to all Americans". In his Wednesday speech, 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 - circumstances that would complicate the Federal Reserve's dual mission of price stability and full employment. Trump's tariffs have increased the cost of many imported goods, squeezed household budgets, and raised concerns about policy-induced economic slowdown when inflation remains above the Federal Reserve's 2% target.
Meanwhile, the president demands immediate interest rate cuts and points out that the European Central Bank cut rates on Thursday.
Yale University's Budget Lab estimates that the inflationary effect of Trump's tariffs is equivalent to each household paying an additional $4,900 in taxes. At the same time, long-term interest rates have soared, leading to higher borrowing costs for homebuyers, businesses, and consumers.
Who is Jerome Powell
71-year-old Powell is currently serving his second term as chairman of the Federal Reserve, the most powerful economic policy-making institution in the United States. A Republican and former investment banker, he was appointed to the Federal Reserve Board of Governors by President Barack Obama in 2012 and elevated to chairman by Trump in 2017. Biden later reappointed him, indicating broad bipartisan trust in his central bank management.
During Powell's tenure, the Federal Reserve has faced a series of economic shocks, from the pandemic-induced recession to the worst inflation 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 raising rates in 2022 to curb inflation that had surged above 9%.
Although inflation cooled in March to a six-month low, the inflation trend has not been smooth, and Powell faces criticism from both the left and right about whether the Federal Reserve's actions were too slow or too aggressive.
Binder stated: "Compared to the economic performance during Trump's first term, Powell's support rate may have significantly declined." "Many might say the Federal Reserve's actions to suppress 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?"
