Can Trump Fire Jerome Powell? Analyzing the Implications for the Fed
In a surprising twist of political power, former President Trump has revived discussions on whether he can dismiss Federal Reserve Chairman Jerome Powell. This could signal a drastic shift in the way the financial system operates.
Trump and Jerome Powell: A Complicated History
In 2017, President Trump nominated Jerome Powell to chair the Federal Reserve, expecting steady economic growth under Republican leadership. However, by late 2018, Trump became one of Powell’s loudest critics, accusing the Fed of over-tightening monetary policy and resisting rate cuts ahead of the 2020 election. Trump’s frustration boiled over in tweets like:
“I think the Fed is making a mistake. They’re so tight. I think the Fed has gone crazy.”
This public rebuke marked a stark turn in their relationship. Trump believed Powell’s reluctance to lower interest rates threatened his reelection bid and broader economic stability. The ensuing tension raises the question of why Trump now contemplates firing the very man he appointed, potentially upending decades of Fed independence.
The Role and Power of the Fed
The Federal Reserve, often simply called the Fed, is the United States’ central bank. Its primary mandate is to balance inflation and employment—keeping inflation near 2% while supporting roughly 4% unemployment. The Fed controls short-term interest rates and manages the size of its balance sheet, using tools such as open market operations and quantitative easing. This operational independence is designed to shield monetary policy from day-to-day politics. However, the Fed still must coordinate with the Treasury and Congress. Any perceived political interference—or direct influence by a president—could undermine confidence in the Fed’s ability to make objective market-driven decisions.
Political Pressures on Monetary Policy
Politicians have long eyed the Fed for short-term gains. In August 2019, former New York Fed President Bill Dudley wrote an opinion piece in Bloomberg arguing that the Fed should “consider how their decisions will affect the political outcome in 2020,” effectively suggesting monetary policy could be used to influence Trump’s reelection.[verify] Meanwhile, a 2022 study found that the ratio of Democrats to Republicans among Fed economists is roughly 10:1, though these staffers don’t directly set policy,[verify] their research informs the Federal Open Market Committee (FOMC). Such imbalances and high-profile commentary cast doubt on the Fed’s apolitical stance and give President Trump ammunition to claim that Powell and his colleagues are driven more by ideology than by economic fundamentals.
Bond Vigilantes and Market Reactions
The term “bond vigilantes” describes investors who sell government bonds to protest policies they deem irresponsible, driving yields higher. In late 2022, British bond vigilantes helped topple Prime Minister Liz Truss after her tax-cut budget proposals spooked investors and crashed UK gilt prices. Similarly, recent volatility in U.S. Treasury markets has been attributed to political concerns rather than fundamental supply and demand. While the Treasury Department reports successful issuance of new bonds, broader yield spikes hint at investors reacting more to the prospect of Trump’s tariff policies and Fed independence battles than to U.S. fiscal health. This underscores how market participants can wield fixed-income positions to influence policy outcomes.
The Path to Dismissal: Legal Hurdles
Under current law, the president can only remove a Fed chair for “cause”—a term that includes inefficiency, neglect of duty, or malfeasance in office. What qualifies as cause has never been fully defined by the courts, but FOMC members are clearly vulnerable if they stray from the Fed’s dual mandate. Trump has explicitly argued that Powell’s decisions are political, claiming rate cuts before the 2020 election and high rates today both reflect an unwillingness to support his administration. Meanwhile, Trump’s appeal to the Supreme Court seeks to overturn a 1935 ruling that protects federal agency employees from at-will dismissal. A favorable decision, expected this summer, could clear the legal path for Trump to fire Powell, fundamentally altering the Fed’s structure and independence.
Fed Independence: A Historical Trend
Fed independence has waxed and waned since the institution’s founding in 1913. Initially controlled by the Treasury, the Fed only achieved de facto autonomy in 1979 under Chairman Paul Volcker. Since the 2008 financial crisis, however, the Fed and Treasury have grown increasingly interdependent, as documented in a Richmond Fed paper. During the crisis, the Fed bought trillions in government debt to stabilize markets, a form of direct cooperation with fiscal authorities that blurred lines of independence. Subsequent global crises, from the pandemic to geopolitical conflicts, have further tested this autonomy. Firing or restructuring the Fed would be just the latest step in a decades-long decline of central bank independence.
Anticipating the Market Fallout
If Trump were to fire Powell, markets would likely react with extreme volatility. Investors value the Fed’s credibility in fighting inflation and smoothing economic cycles. Removing an independent chair under political pressure could spark a sell-off in Treasuries, equity market turbulence, and a spike in borrowing costs. In the worst case, a politicized Fed might finance deficits by printing money, risking runaway inflation or stagflation. Scarcity-priced assets such as gold and Bitcoin could surge, while everyday consumers face higher prices and supply shortages. A compromised Fed could lead to misguided resource allocation and deepen economic disparities, threatening both the market and the average household.
Conclusion: Key Takeaways and Next Steps
As the Supreme Court considers Trump’s appeal this summer, the balance of Fed independence hangs in the balance. Will Trump pursue firing Powell, or rely on other levers such as public pressure and future appointments? The coming months will reveal whether the Fed remains an apolitical guardian of monetary policy or becomes another branch of executive power.
Bold Actionable Takeaway:
• Stay informed on the Supreme Court’s ruling on federal dismissals, as it will directly impact Fed structure and your investment strategies.
What’s your view on the tug-of-war between political influence and economic decision-making at the Fed? Join the conversation on the future of central bank independence.