Unraveling the legal, economic and market ramifications if Trump tries to fire Fed Chair Powell
If PresidentDonald Trumptries to fire Federal Reserve ChairJerome Powell, it would almost certainly set off a courtroom battle that legal and policy experts say is bound to get messy, with uncertain impacts on the central bank, financial markets and the economy.
The tempestuous situation poses a myriad of thorny questions for which there are no easy answers considering no president ever has tried to unseat a Fed chair.
Among them:
"What is extraordinary here is the president going back and forth and discussing loudly whether he might fire or try to fire the Fed chair," said Bill English, the Fed's former director of monetary affairs and now a Yale professor. "Of course, we've never gone through that, so we don't know legally how that would work and how the courts would see that and so on. So, I think it's all things that we haven't seen before, and raises real uncertainties."
A rapid about-face
Even by Trump's standards, the events surrounding Powell of late have been stunning.
After an extended campaign of ad hominem attacks on Powell and demands for lower interest rates,Trump met with Republican congressional membersTuesday evening and asked them if he should fire the Fed chair, according to a senior administration official.
After the GOP members showed their backing for the move, the president indicated to them he would move on Powell "soon," the official said.
However, no sooner did news break of the meeting then Trump told reporters that he's not considering a move, saying it's "highly unlikely" while simultaneously wondering out loud whether alleged mismanagement of the $2.5 billion expansion might qualify as cause.
Subsequent reports suggested that Trump's lawyers indicated that he would have a hard time legally dismissing Powell. The Supreme Court'sruling in Trump v. Wilcoxthis year called the Fed a "uniquely structured, quasi-private entity" whose governors enjoy insulation from removal for political or policy reasons.
That, of course, does not mean Trump won't try.
"It's a very high bar legally, but there also haven't been really any historical precedents for it," Jonathan Kanter, former assistant attorney general during the Biden administration, said on CNBC. "So it would get litigated in court, probably be quite a bit of a circus, but, yeah, the standard is very high. It has to be for cause, and it has to be for neglect, malfeasance, abuse."
The legal fallout
Powell's options would entail suing and asking for a stay on any Trump removal action, Kanter said. The tactic itself could push resolution past the expiration of the Fed chair's term in May 2026.
As it winds through the legal system, the case would draw close attention and either could act as a bulwark for Fed independence, or reduce the normally sacrosanct central bank to just another political body subject to the whims of the Oval Office.
"The Supreme Court has signaled it would likely side with the Fed chair," Kanter said. "It views the Fed as historically different than other independent agencies. Then it would kick the case right back down to a district court, which would determine whether the president had a basis to fire the Fed chair."
Despite seemingly low chances of success, going after Powell still could serve a political purpose for Trump.
"I think Trump is setting it up so that there's a sword of Damocles hanging over Powell's head throughout the rest of his tenure," Kanter said. "If there is a sustained period of inflation or stagflation, Trump has the ability to say, well, it's this guy's fault because he didn't lower interest rates."
Indeed, the Trump-Powell dispute by all appearances runs deeper than qualms over the building renovations.
Quest for rate cuts
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