Can Trump Fire Powell?
Key Takeaways
- Legal Limits on Dismissal: Despite media hype, Trump cannot legally fire Fed Chair Jerome Powell without cause, due to the Federal Reserve’s unique legal structure and Supreme Court precedent.
- Political & Market Risk: Attempting to remove Powell would likely trigger market disruption and political backlash, making it strategically unwise.
- Public Pressure Tactic: Trump’s public statements may be more about applying political pressure than actually attempting a dismissal, even though such tactics might delay rate cuts rather than accelerate them.
- No-Lose Narrative: Trump’s strategy positions him to claim credit if the economy holds or shift blame to Powell if it weakens, a political win-win regardless of Fed action.
The idea that President Trump wishes to fire Fed Chairman Powell had filled the media this past week and the discussion continues, even though Trump indicated he has no intention to do so. (But Trump is known for changing his mind, so the debate cannot die a mercifully quick death.) This is a legal question, but also a strategic issue, since Trump could always name a successor even if that person can’t become Chairman until Powell’s term expires. It is our judgment that much of this is Kabuki theater and no firing will occur.
First, Trump knows he can’t fire Powell outright. The Supreme Court recently ruled that the President can fire the heads of Departments and Commissions, but it also stated the Federal Reserve is a unique entity based on historical considerations. Moreover, the Court ruled the President cannot fire a Fed Governor, except for cause. So, it is surely not worth the legal battle to evict Powell from the Chairmanship, especially since he would remain a Governor, and the legal fight will take time and Powell’s term as Chairman expires before the middle of next year.
Source: ACM Wealth Services
The above chart shows temporary declines in the S&P 500 following Trump’s public comments on potentially firing Fed Chair Jerome Powell, followed by rebounds as markets dismiss the likelihood of action.
Second, any effort to fire Powell would disrupt the markets and hurt Trump politically. Most academics and many politicians regard the Fed’s independence from the Executive branch of government as vital to it conducting policy and keeping the U.S. Treasury bond market free of political manipulation.
Third, by talking about dismissing Powell publicly, Trump is putting some pressure on Powell to lower rates. Even so, Trump and surely his advisors understand that Powell can’t allow himself to be pressured into a rate cut, so Trump’s public statements more likely push Powell to defer rate cuts into the future. If Trump really wanted Powell to cut rates, he should be working behind the scene, as he is doing with tariff negotiations. That he is making this case public suggests other considerations are at play. And Trump has plenty of other issues on his plate, so expending political capital to make a difficult effort to shorten Powell’s role as Fed Chairman is simply not worthwhile.
Fourth, publicly pressuring Powell to cut rates is a no-lose proposition for Trump. If things go well for the economy with the Fed keeping rates unchanged, no one will care that Trump was wrong, not even Trump. He will surely take credit for the economy’s good performance and attribute it to passage of his tax bill. If the economy goes wrong, he can blame Powell for not cutting rates.
Governor Adriana Kugler’s term as Governor expires January 31, 2026, so Trump could name Powell’s successor to take her seat as of that date, even if the new appointee is formally a Governor, not Chairman. But the new person would only have one vote out of twelve and might anger their colleagues if they fail to behave collegially like all past Fed officials.
The markets were roiled by the idea that Powell might be forced out, but it seems the downdrafts are already becoming less significant. And every day that passes shortens Powell’s term anyway, making the fight less worthwhile.
Lastly, the media loves the whole thing, since they can keep the issue alive by repeatedly asking Trump at every press conference or opportunity if he intends to fire Powell and any answer gives them more to report, which is classic Kabuki theater. So, it is doubtful this “issue” will go away. But it provides good entry points to invest each time the market sells off following statements that Trump would like to fire Powell, since the market rebounds as it becomes clear no firing will take place. Unfortunately, these setbacks are becoming smaller with each comment. So, the market retreats seen after each statement about forcing Powell out are becoming ever less useful as opportunities to buy equities.
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