 "Trump vs Powell: Can the US president really fire a Fed chief?")
One of US President Donald Trump’s most contentious relationships remains with the head of the US central banking system — Federal Reserve Chair Jerome Powell.
Over the past weeks, Trump has revived his long-standing frustration with Powell.
On Wednesday, Trump told reporters in the Oval Office that it was "highly unlikely" he would remove Powell from his post.
He added, however, that “unless he has to leave for fraud,” he would prefer not to act.
The previous day, in a closed-door meeting with Republican lawmakers, Trump took a far more confrontational stance.
According to sources familiar with the meeting, he asked the lawmakers whether he should go ahead and dismiss Powell, even going so far as to point toward a letter he claimed was a draft of Powell’s termination, reported numerous US media outlets.
Those in attendance reportedly reacted favourably to the idea, which appeared to embolden the president.
Though he later insisted to the media that reports of an imminent dismissal were “not true,” Trump confirmed he had discussed the concept of firing Powell with lawmakers and claimed that most of them supported it.
The catalyst for this renewed pressure appears to be a $2.5 billion renovation plan for the Fed’s historic headquarters in Washington, DC.
Trump has seized on the cost overruns and design changes in the project as justification for escalating criticism. “I think he’s terrible… But the one thing, I didn’t see him as a guy that needed a palace to live in,” Trump remarked.
He mocked Powell by saying conversations with him were like “talking to a chair.” When asked directly whether the renovation alone constituted grounds for removal, the president responded, “I think it sort of is.”
Can a president remove the Fed chair?
The Federal Reserve Act permits the president to remove a member of the Fed’s Board of Governors “for cause,” a phrase interpreted by courts to mean instances of inefficiency, misconduct or dereliction of duty.
However, the legal standing around the removal of the chair specifically remains less clear. Jerome Powell, while serving as chair, is also a member of the Board of Governors and of the Federal Open Market Committee (FOMC), the Fed’s principal policy-making body.
The US Supreme Court recently signalled in a May decision that the Federal Reserve’s unique quasi-private structure might shield it from presidential interference.
The court’s ruling indicated that while the president may have broader authority to remove heads of other independent federal agencies, the Fed’s structure offers it distinct legal protection, especially when no explicit misconduct or legal violation has been proven.
How has Trump been pressuring Powell?
In recent weeks, administration officials have mounted a campaign against Powell, focusing sharply on the escalating cost of the Fed’s headquarters renovation project.
The plan, originally estimated at $1.9 billion in 2023, has ballooned to $2.5 billion.
The Fed attributes the increase to updated design requirements, consultations with oversight bodies, and the discovery of unforeseen conditions such as higher-than-expected levels of asbestos.
Powell, appearing before Congress on June 25, defended the renovations and disputed suggestions that the project included extravagant features.
However, some of Trump’s allies saw an opening.
Bill Pulte, the head of the Federal Housing Finance Agency, labeled Powell’s testimony “deceptive,” though he provided no substantiated evidence. A Fed spokesperson said Powell’s congressional statements were accurate and consistent with internal assessments.
Russell Vought, the director of the Office of Management and Budget, took the criticism further. In a public letter shared on social media, Vought accused Powell of mismanagement and described the renovation as an “ostentatious overhaul.”
He also pointed to the Fed’s recent operating losses to support his criticism. Former Fed Governor Kevin Warsh, who has been floated as a possible replacement for Powell, told Fox News that a “regime change at the Fed” was necessary.
Soon after these developments, Trump replaced three members of the National Capital Planning Commission, which has oversight authority over federal projects in Washington, reported CNN.
The new appointees — White House staff secretary Will Scharf, deputy chief of staff James Blair, and OMB analyst Stuart Levenbach — are seen as loyalists, raising concerns about politicisation of oversight mechanisms related to the Fed’s operations.
How will Powell’s potential removal impact the market?
Even the suggestion that Powell could be dismissed has reverberated through financial markets. On the morning of July 16, the US Dollar Index fell by as much as 0.8 per cent, reflecting investor anxiety.
Although the losses narrowed later in the day following Trump’s clarification, the potential for market instability remains significant.
Republican lawmakers have not remained silent. Louisiana Senator John Kennedy issued a stark warning: “If you fire the chairman of the Federal Reserve, you will see the stock market crash, and you will see the bond market crash.”
He added that unilateral interest rate cuts could trigger panic in the bond market and sharply increase the cost of government borrowing.
US Senator Thom Tillis of North Carolina voiced similar concerns, stating that dismissing Powell would be a “colossal mistake” and would undermine global confidence in the Fed’s independence.
“So anybody out there in voter land who thinks that firing Jay Powell will change the policy outcomes for [the Fed’s] dual mandate — I don’t think it will,” he said.
Tillis stated that such a move would likely produce “second and third order effects that none of us who track markets want to see.”
What does historic precedent tell us?
This is not the first time Trump has clashed with Powell. Throughout his presidency, both during his first and current terms, Trump has sharply criticised the Fed for not aligning its interest rate policy with his economic agenda.
In 2018, when Powell approved a series of rate hikes, Trump openly floated the idea of firing him. Though he ultimately refrained, the incident marked the beginning of a tumultuous relationship.
Trump has previously said he would not reappoint Powell when his current term ends in May 2026, but until recently, he indicated he would let him serve it out. Powell, for his part, has made it clear that he would not resign if asked to.
Historically, US presidents have often tried to exert influence over the Fed, albeit through informal channels. In 1965, Lyndon Johnson summoned then-Fed Chair William McChesney Martin Jr to his Texas ranch to express displeasure over monetary tightening.
In the early 1970s, Richard Nixon pressured Fed Chair Arthur Burns to avoid raising interest rates, a move that some economists later blamed for fuelling inflation.
By contrast, President Joe Biden largely avoided public commentary on Fed decisions during his term. However, some Democratic lawmakers, including Senator Elizabeth Warren, did call for lower interest rates before the Fed shifted policy in September 2024.
So what power does Trump actually have?
Trump’s power over the Fed lies primarily in nominating individuals to serve on the Board of Governors and choosing leadership positions when terms expire. Powell’s term as chair runs through 2026, while his term as a governor extends to 2028.
As past precedent shows, most Fed chairs have left the board after stepping down from the chairmanship, but it is not legally required.
Another opportunity for Trump to influence the Fed’s composition will arise in January 2026, when Governor Adriana Kugler’s term ends. These appointments, however, affect only a portion of the 19-member Federal Open Market Committee.
The remaining seats are filled by presidents of the 12 regional Federal Reserve Banks, chosen not by the White House but by their respective boards and subject to approval from the Board of Governors.
Trump has already had an opportunity to appoint a new vice chair for supervision, a key regulatory role.
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