It would probably be difficult for the US president to fire the chairman of the Federal Reserve over interest rates.
But no one is entirely sure what would happen if he tried.
As a legal issue, it has been debated for decades but never tested. And if Donald Trump wins this November and then moves to curtail Jerome Powell's independence or even try to remove him altogether, it will be more than academic. right.
The former president previously claimed he could fire Powell, but legal experts are not convinced.
For now, Trump appears to be more focused on his own legal issues, with some in his circle still keenly focused on the Federal Reserve's problems. Trump himself has found time to discuss the possibility of replacing Powell when his term ends in 2025 or 2026.
The latest development was this week's revelation in the Wall Street Journal that a group of Trump allies outside his formal campaign are drafting a proposal that, if passed, would significantly undermine the Fed's independence.
In addition to the discussion that Mr. Trump may fire Mr. Powell, there is also debate among the former president's allies about how far he will go. One “long-term” proposal reportedly under consideration makes the explosive argument that the president should have a direct say in setting interest rates.
Fed chairmen have fiercely protected their independence for decades, and Powell often emphasizes that point. In his recent speech, he said, “We're going to do what we're going to do, and we're going to do it for economic reasons, that's all.”
The political debate over Powell comes as the central bank considers complex (and politically fraught) decisions about when to start cutting interest rates.
read more: Impact of Fed interest rate decisions on bank accounts, CDs, loans, and credit cards
It is not yet clear when monetary policy easing will begin. Inflation rose again on Friday, increasing the likelihood of a near-term rate cut.
But what is clear is that if President Trump wins in November, Mr. Powell could be under unprecedented pressure.
(somewhat unresolved) legal issues
Trump, on the other hand, believes he has the power. He bluntly stated in a press conference during the early stages of the 2020 coronavirus pandemic that “I have the right to fire” Powell, and he has repeated this idea publicly.
He added that he could demote Mr. Powell from his position as chairman and “place him in a permanent position and put someone else in charge.”
But President Trump ultimately declined to test either power in court.
At issue is Section 10 of the Federal Reserve Act. The law states that each member of the board will serve a 14-year term “unless earlier removed for cause by the President.” There is no language in the ordinance that specifically refers to the chair of the board.
The question is: what constitutes “for the greater good”? The language of the law is clearly more restrictive than that of cabinet members and other members of the presidential administration, who are often said to work at the president's “choice.”
Legal experts tend to say that a simple policy disagreement does not rise to the level of cause, but that is a standard that has not been tested by judges.
The issue was the subject of intense debate in 2018 and 2019, following reports in the same year that then-President Trump had floated the idea of firing Powell behind closed doors.
In a 2019 report on what happens when a president is challenged, Peter Conti-Brown of the Brookings Institution said that a president who simply tries to remove the chair without accusing him of fraud or dereliction of duty would likely He wrote that there is a high possibility that the matter will be challenged in the Supreme Court.
If the justices uphold such a dismissal, he wrote, “it would represent one of the biggest changes in American administrative law in 80 years.”
Mr. Conti-Brown also laid out various market-roaring scenarios that could occur if the president were to try to remove Mr. Powell from his position as either Federal Reserve chairman or board member.
One particularly striking scenario is that Mr. Powell files a lawsuit in response and is allowed to remain in his position pending a court hearing.
In a recent interaction with Yahoo Finance, Conti-Brown said the legal situation is the same as in 2019 and this document still represents his views.
A different take on the issue in 2019 from Robert Eisenbeis, chief financial economist at Cumberland Advisors, was a little more blunt. The question of whether Powell could be fired is up for debate, he said, but “the short answer seems to be no.”
Will Trump try?
This week's news about efforts among Trump allies is just the latest example of Trump administration officials debating whether to rein in the Federal Reserve's independence.
The book, described as a “comprehensive policy guide for the next conservative U.S. president,” is part of Project 2025, an independent effort by the influential Heritage Foundation to plan for if Trump wins. Published in 2023 as
The book includes a chapter that considers reducing the Federal Reserve's powers, but stops short of advocating for Powell's removal.
Trump aides have long sought to downplay the campaign's ties to these groups. They argue that these proposals should not be taken as President Trump's views, but the study is likely to be influential if a second Trump administration takes office.
John McEntee worked in President Trump's White House and is currently working on Project 2025. He recently said that when it comes to his own efforts and the official Trump campaign, he will be “merging a lot of our work with them” over next summer.
This was a fact that the Biden campaign was happy to highlight. “Project 2025's agenda is Trump's agenda,” Biden-Harris 2024 spokesperson James Singer said in a statement.
Regardless of whether President Trump ultimately decides to listen to the more aggressive ideas of his allies, one thing is clear: Chairman Powell will have a third term as chairman when his current term expires in 2026. Don't give yourself a deadline.
President Trump said, “I will not reappoint him. For better or worse, I thought he was always going to be late, and he was always late.”
Ben Werschkul is Yahoo Finance's Washington correspondent.
Click here for business and money-related political news
Read the latest financial and business news from Yahoo Finance
