Trump vs Powell: Can the US president fire the Fed chair?

Donald Trump’s renewed pressure on US Federal Reserve Chair Jerome Powell has rattled both Washington and Wall Street. At the centre of the storm is a simple but unprecedented question: Can Trump fire Powell? And if he does, what happens next? While Trump has publicly downplayed the idea, calling Powell’s removal “highly unlikely, unless he has to leave for fraud”, reports of the president preparing for action have stirred markets and alarmed legal scholars.

Let’s unpack the legal grey zones, market reactions, and the political risks of what would be a first in US history.

Could Trump legally fire Jerome Powell?

At the heart of the debate is Section 10 of the Federal Reserve Act, which states that members of the Fed’s Board of Governors, including the Chair “can be removed for cause”. However, the phrase “for cause” has never been tested in the Supreme Court within the context of the Federal Reserve.

According to a Columbia Law School paper by Jane Manners and Lev Menand, the term typically refers to inefficiency, neglect of duty, or malfeasance in office. These standards are vague and rarely applied, and no US president has ever attempted to invoke them against a Fed chair. If Trump were to act, it would almost certainly set off a legal battle. As per Bloomberg, Powell could seek an emergency injunction from a federal court to stay in office while litigation unfolds. The case would likely reach the Supreme Court, creating a high-profile test of presidential power.

What is the ‘fraud’ claim Trump is citing?

Trump has pointed to the $2.5 billion renovation of the Fed’s headquarters in Washington, up from a previous estimate of $1.9 billion, as potential grounds for dismissal. The cost increases stemmed from asbestos issues, design changes, and regulatory reviews. The decision was approved by the Fed board, not Powell personally.

Still, Trump and his allies are building a narrative. On July 10, Russell Vought, former White House budget chief, called the renovation an “ostentatious overhaul” on social media. Bill Pulte, a Trump-appointed regulator at the Federal Housing Finance Agency, accused Powell of misleading Congress, though no evidence has been presented. The Fed maintains that Powell testified accurately, and the central bank’s Inspector General has opened a probe at Powell’s own request.

What happens if Powell is removed?

If Trump removes Powell, Vice Chair Philip Jefferson, a Biden appointee, would serve as acting chair under existing law. A permanent replacement would require Senate confirmation, a process that could stretch for weeks or months. But replacing Powell may not deliver Trump’s intended outcome. The Federal Open Market Committee (FOMC), which actually sets interest rates, can choose its own chair and is not legally bound to select the Fed chair.

While traditionally the roles have aligned, the FOMC has 19 members (12 of whom vote), any of whom could be elected as chair. This means Trump could remove Powell but still fail to control monetary policy, particularly if Jefferson or another member continues the Fed’s cautious stance on rate cuts.

What would the courts say?

The Supreme Court has recently tilted in favour of broader presidential powers, particularly in Trump-related rulings. In 2024, it granted him sweeping criminal immunity and allowed contested policies to proceed. Still, the Court has treated the Fed differently. In a May 2024 decision, it referred to the central bank as a “uniquely structured, quasi-private entity”, implying that the president’s authority over it may be more limited than with other agencies.

Boston University’s Jed Shugerman told Reuters that the current court seems to be “getting out of Trump’s way”, but others like Jonathan Shaub of the University of Kentucky caution that even if Trump’s actions are ruled illegal, the courts may hesitate to reinstate Powell, especially given recent rulings that restrict judicial reappointments of senior officials.

How did markets react?

The threat to Powell’s tenure triggered a swift reaction in global markets. Within 30 minutes of the Bloomberg report detailing Trump’s potential move, the S&P 500 fell by 1 per cent. Yields on 30-year US Treasury bonds surged by 10 basis points, reflecting fears of long-term volatility. Meanwhile, the Bloomberg Dollar Spot Index slid by 1.2 per cent, signalling concerns about the Fed’s future policy stance.

These moves reflect the Fed’s foundational role in market stability. Investors are deeply concerned about political interference in central banking, especially at a time when inflation remains volatile and the US economy is navigating post-COVID interest rate dynamics.

Could Trump win the legal fight?

It depends on how the case is framed. If Trump argues that Powell was inefficient or engaged in misconduct over the building renovation, courts would have to assess whether Powell directly authorised the overruns, whether those actions meet the legal standard for “cause”, and whether the Fed’s semi-independent status insulates him from dismissal altogether. There is no precedent. No Fed chair has ever been fired.

The Supreme Court has never ruled on this issue. But with Washington’s political landscape shifting and the judiciary’s recent deference to presidential power, Trump may find a path, albeit a legally contested one. Trump’s feud with Jerome Powell is no longer just a monetary policy debate. It’s a constitutional confrontation over the limits of presidential authority, the independence of America’s central bank, and the credibility of financial governance. If Trump proceeds, the consequences will go far beyond interest rates. It would be a test of how far the US system is willing to stretch or break under pressure from a single president.

Has any US president fired a Fed chair?

No US president has ever fired a sitting Federal Reserve Chair. Not during war, economic crisis, or political turmoil. Even in past disagreements, such as Richard Nixon’s clash with then-Chair Arthur Burns, the White House never took legal action to remove the Fed head.

According to legal scholars cited by Bloomberg, the Federal Reserve has long been viewed as an independent agency, buffered from direct political control. Trump’s attempt would mark a historical first and test the constitutional boundaries of executive power.