What Might Occur if Trump Attempts to Remove Powell
President Donald Trump has criticized Federal Reserve Chair Jerome Powell for not reducing interest rates and even mentioned firing him.
The White House is now looking at a $2.5 billion renovation of the Fed’s headquarters in Washington, DC, as a potential reason to dismiss Powell as Trump pushes for significant rate cuts. Trump recently stated that it is unlikely he will try to fire Powell but left room for the possibility of fraud.
Removing Powell would be an unprecedented move in the central bank’s history and could lead to a legal battle, financial market instability, and economic uncertainty. However, firing Powell does not guarantee lower interest rates as he is just one of 12 people who vote on policy decisions at the Fed.
The process of removing a Fed official involves proving "cause" for their removal, such as malfeasance, neglect of duty, or inefficiency, as outlined in Section 10 of the Federal Reserve Act. Policy disagreements, like Trump's differing views on interest rates, are not sufficient grounds for removal.
Powell holds multiple roles within the Fed, including chair of the Board of Governors and the Federal Open Market Committee (FOMC), which sets interest rates. It is uncertain if the for-cause rule applies to Powell's leadership positions.
In the event of a for-cause removal, Powell would have the opportunity to respond, but the timeline for this process is unclear due to the lack of recent precedents. Powell could potentially challenge his firing in court and argue for his reinstatement as chair.
If Trump issues a removal order, it could take months for the case to be resolved, possibly extending beyond Powell's term as chair. During litigation, Fed Vice Chair Philip Jefferson would temporarily assume Powell's responsibilities.
While some have called for Powell's resignation, Treasury Secretary Scott Bessent has not advocated for his removal, suggesting a full review of the Federal Reserve instead. Bessent emphasized that Powell's term ends in May and he should have the option to complete it.
The article includes contributions from CNN's Matt Egan.