There are moments when it seems like Donald Trump might actually fire Jerome Powell.
But it’s not just Trump who’s uncertain about the future of the Federal Reserve Chairman; his own staff seems to be in the mix as well.
Insiders say that opinions are divided on whether the president has the legal grounds to dismiss Powell.
Powell’s term runs out in ten months, but Trump is reportedly eager for a more immediate change, citing concerns that Powell is too cautious regarding interest rate cuts.
Legally, Trump can let Powell go “for cause,” and his team is trying to determine what that “cause” would be, ensuring it withstands potential legal challenges.
Those advocating for Powell’s dismissal argue that the president has considerable latitude in interpreting the “cause” clause, stemming from a 1913 law that established a semi-independent central bank aimed at regulating money supply and fostering economic stability.
While the president nominates the Fed Chairman for a four-year term that requires Senate confirmation, dissenters in the administration believe that if Powell’s performance is found lacking, it’s entirely within Trump’s rights to push back against him, particularly given the inflation issues that arose before interest rates were raised in 2021.
Trump could even argue that Powell is failing in his duties because he did not act sooner to lower interest rates, especially as economic signals indicate a slowdown and his tariffs did not create expected inflationary pressures.
On the flip side, those wanting to keep Powell, including Treasury Secretary Scott Bescent, contend that “for cause” should be reserved for serious ethical violations or misconduct. They argue that unhappiness over interest rate policy isn’t sufficient.
Indeed, the Federal Reserve Act specifically aims to protect its independence from presidential interference, setting a high bar for what counts as “cause.”
Interestingly, accusations against Powell concerning a $2.5 billion renovation project have emerged, with some claiming he misled Congress about the project’s extravagant nature. However, proving perjury in this case could be challenging, and Powell isn’t the only bureaucrat to overspend.
If Trump does move forward with a dismissal, it would likely invite a complicated legal dispute. Powell could refuse to resign, asserting that the required standards for “cause” have not been met, which might even spark Supreme Court involvement. The written law leaves some ambiguity, making it uncertain whether judicial appointees by Trump would rule in his favor.
A conservative majority may be hesitant to disrupt precedents regarding the independence of the Fed Chair, suggesting it might be less contentious to allow Powell to finish his term next May and even remain a governor until 2028.
As it stands, the faction supporting Powell seems to be prevailing for now. Trump mentioned recently that he has “no plan” to dismiss Powell, though he did add a caveat regarding potential fraud.
Interestingly, as worries about interest rate strategies grow, it’s actually Bescent who will evaluate alternative candidates for Powell’s position.
The new spending bill isn’t projected to cut the deficit in the short term, prompting Bescent to issue a significant amount of debt. He appears to be adopting strategies similar to his predecessor, Janet Yellen, to prevent sharp rises in interest rates on short-term debts, particularly around 10-year bonds.
With all this going on, it seems Bescent has shifted his stance, potentially aligning himself with the “Fire Powell” advocates, as it would simplify his role in managing the debt.
So far, neither the White House nor Bescent’s office has commented on the evolving situation.
