Fed chair says he can not legally be removed by Donald Trump
Federal Reserve chair Jerome Powell addressed concerns on whether President-elect Donald Trump could demote him.
President Donald Trump’s swipe at Jerome Powell Thursday, in which he referred to the Federal Reserve chief’s “termination,” marks the latest salvo in Trump’s longstanding efforts to browbeat the central bank chairman into lowering interest rates.
“Powell’s termination cannot come fast enough!” Trump wrote on Truth Social of Powell, whose term as chair ends in May 2026.
But the attack comes at an especially fraught moment for the Fed, experts say, with the Trump administration challenging restraints that prevent the president from firing board members of independent agencies.
The Fed also faces a historic quandary as it weighs whether to cut interest rates amid an unusual conflict between its missions to keep inflation low while promoting a sturdy economy and job market.
Whose job is it to control inflation in the US?
At a speech Wednesday at the Economic Club of Chicago, Powell sressed that with Trump’s high import tariffs set to push up consumer prices, the Fed’s “obligation” is to ensure a one-time rise in prices doesn’t boost Americans’ inflation expectations and “become an ongoing inflation problem.”
That suggests that all things equal, the Fed will be wary about lowering rates too quickly to spark an economy that’s also expected to slow dramatically as the duties sap households’ buying power.
At the same time, Powell said officials may face “a challenging scenario” in which its goals “are in tension.” He said the Fed will assess “how far the economy is from each goal” and prioritize the one posing the biggest dilemma.
In other words, if the economy is in a recession or sliding into one, the Fed presumably will lower rates but not if inflation has spiked and the economy is simply losing steam.
Trump responded on Truth Social: “The (European Central Bank) is expected to cut interest rates for the 7th time, and yet, ‘Too Late’ Jerome Powell of the Fed, who is always TOO LATE AND WRONG, yesterday issued a report which was another, and typical, complete ‘mess,” Trump wrote.
In a coversation after his speech, Powell repeated his oft-mentioned assurance that the Fed is insulated from politics so officials can make the best decisions for the economy. He added that Trump legally can’t fire him. “Not permitted under the law,” he said.
But steering clear of politics, or the perception that they’re not being taken into account, may not be that simple, said Peter Conti-Brown, a professor of financial regulation at the Wharton School of the University of Pennsylvania.
Is the Fed outside of political influence?
Noting the Fed’s effectiveness depends on its independence, Conti-Brown said, “It is extremely difficult to undo the damage,” Trump is doing.
“I don’t think it means the Fed is really going to capitulate monetary policy to Donald Trump,” Conti-Brown said.
Still, markets may believe Fed officials will be more likely to trim rates sooner after Trump’s outburst, he said.
“This request for lower rates could backfire if markets perceive that going forward the Fed will be less committed to low and stable inflation,” said Francesco Bianchi, a professor of economics at Johns Hopkins University. “This could create additional inflationary pressure and an increase in long-term interest rates as markets price in higher expected inflation.”
Also, the Fed must be free to move quickly to deploy bold strategies, such as its bond-buying campaign during the 2008 financial crisis and emergency lending measures during the COVID-19 recession of 2020, Conti-Brown said.
But if officials are weighing political ramifications, they may fail to take such out-of-the box steps swiftly in the future, Conti-Brown said. While he said he doesn’t believe the Fed bends to political pressure, he doesn’t buy the idea that the Fed doesn’t account for the political costs of its actions.
Another problem: The Trump administration is asking the Supreme Court to hear its challenge of a rule that prevents a president from firing independent agency board members without cause. In that context, Trump’s words Thursday could carry more weight with investors and markets, Conti-Brown said.
During last year’s presidential campaign, Trump advisers were reportedly drafting a proposal that would allow the president to be consulted on interest rate decisions, a move that similarly could erode the Fed’s independence.
After Trump’s Truth Social post, the stock market tumbled Thursday morning before rebounding.
“Fed independence is not a switch you can flip on and off,” Conti-Brown said. “What Donald Trump has done is shove more of the political pressure onto the Fed.”
Does the President control the Fed?
It’s not unprecedented for presidents to comment on Fed policy privately or publicly in favor of lowering interest rates to boost the economy and their re-election chances, Conti-Brown said.
President Richard Nixon’s phone transcripts include a December 1971 exchange with then Fed Chairman Arthur Burns in which Nixon praises him for lowering the discount rate, according to an article in the Journal of Economic Perspectives. Of other Fed policymakers, Nixon says, “You can lead ‘em … Just kick ‘em in the rump a little.”
But no president has attempted to pressure the Fed as persistently and overtly as Trump.
In August 2018, shortly after Trump appointed Powell as chair during his first term, Fed officials were hiking rates to bring them back to normal after years of near-zero rates following the 2008 financial crisis.
Trump told wealthy donors he thought Powell favored “cheap money,” and was disappointed to see him embrace rate hikes, according to the Wall Street Journal and Bloomberg. “This can only happen to Trump,” the President reportedly said.
Several months later, Trump told the Washington Post he was “not even a little bit happy” with his choice of Powell. He told the paper the Fed’s key rate – though a historically low 2% to 2.25% – was slowing the economy.
“I’m doing deals, and I’m not being accommodated by the Fed,” Trump told the Post. ‘They’re making a mistake because I have a gut and my gut tells me more sometimes than anybody else’s brain can ever tell me.”
He said the rate increases were thwarting his efforts to deliver on his vows of 3% or better economic growth.
That didn’t stop Fed officials, who hiked rates for a fourth time that year in December, saying they needed to gradually move rates higher to head off an eventual run-up in inflation on concerns that low unemployment could push up wages and prices.
By early 2019, the Fed had stopped raising rates after its moves doused the stock market but it wasn’t yet cutting.
“We have the potential to go up like a rocket ship if we did some lowering of rates” as well as resuming bond purchases to bring down long-term rates, Trump tweeted. He called for officials to slash rates by a full percentage point.
Then, in August 2019, after the Fed approved the first of three quarter-point cuts, Trump called for “at least” a 1 point cut, noting Germany’s key short-term rate was negative.
Economists, however, said such a sharp drop in rates could spread fear about the economy, court higher inflation, create the kind of asset bubble that led to the 2007-09 housing crash and recession, and leave less room to cut rates to head off a potential recession.
This past January, Trump wasted no time reviving his campaign just days after his inauguration. In a video appearance at the World Economic Forum in Switzerland, Trump said Saudi Arabia and OPEC should take steps to lower oil prices.
“With oil prices going down, I’ll demand that interest rates drop immediately,” Trump said.
Asked about his remarks later in the Oval Office, Trump said, “I think I know interest rates much better than (Fed officials) do.
“And I think I know it certainly much better than the one who’s primarily in charge of making that decision,” he added, alluding to Powell.
