Wait, Can He Actually Do That? Part 16: Trump's Threat to Fire Fed Chair Powell

President Donald Trump recently took to social media to call Federal Reserve Board Chair Jerome Powell a "major loser" for failing to lower interest rates "NOW." Read against the backdrop of Trump's statement that Powell's "termination cannot come fast enough" and National Economic Council Director Kevin Hassett's confirmation that the administration is studying whether Trump can fire Powell, Trump's broadsides against Powell wreaked further havoc on Wall Street.

Understandably so. The Fed is insulated from direct political control because of the worry that politicians will favor loose monetary policy in order to goose the economy, even at the risk of causing damaging inflation--or, in extreme circumstances, catastrophic hyper-inflation. There is every reason to worry that this is exactly what Trump would unleash were he to oust Powell in favor of a more compliant lackey who would do his bidding and lower interest rates NOW (assuming the lackey could persuade a majority of the Board to go along or that, if not, Trump replaced them with lackeys too). Although the economy Trump inherited from Biden was generally healthy, with inflation close to the Fed's target and coming down, his tariffs will almost certainly lead to much higher inflation in the near future.

Some of the tariff-induced inflation could be mitigated by a tariff-induced recession. Firms operating in the U.S. that can no longer afford to import as many finished goods or component parts as they previously did will lay off workers. People who have seen their retirement and other investments lose value will have less to spend and thus tighten their belts. The result will be less demand, resulting in less upward pressure on prices. Although that will not be enough to prevent tariff-induced inflation, it might be enough to prevent hyper-inflation. Thus, the best-case scenario for the short to medium term is probably stagflation--high inflation and high unemployment.

Stagflation poses a dilemma for central banks, because they typically raise interest rates to combat inflation or lower interest rates to combat unemployment. In a period of stagflation, doing either exacerbates the other problem. (There is a tradeoff between combating inflation and combating unemployment in normal times too, which is why the Fed has a so-called dual mandate, but in normal times it is possible to keep both inflation and unemployment close to their optimal low values). Faced with stagflation, responsible central bankers will generally prioritize fighting inflation--as Fed Chair Paul Volcker did. The result is very painful but not catastrophic in the way that hyperinflation would be. That's why financial markets reacted very badly to Trump's pressure campaign on Powell and would react even worse if Trump were actually to fire Powell.

Wait, can he actually do that? Surprisingly, it's not entirely clear. By law, the Chair of the Federal Reserve serves for a four-year term and a maximum 14-year term as a member of the Board of Governors. With respect to Board members, the statute specifies that "each member shall hold office for a term of fourteen years from the expiration of the term of his predecessor, unless sooner removed for cause by the President." There is no parallel express reference to removal for cause in the part of the statute setting out the four-year term of the Chair.

One could read the for-cause removal protection as nonetheless extending to the Chair; or one could read the absence of any such reference as enabling the president to demote a Chair to a mere Board member at will (in which case the four-year term would be a maximum, absent reappointment). 

Absent removal, Powell's term as Fed Chair won't end until May of next year. At that point, Trump will be able to nominate someone else, which is a source of real worry. The statute I linked above makes clear that Trump can only choose a new Chair from Board members, but the term of Board member Adriana Kugler will expire in January 2026, at which point Trump could name some loyalist FoxNews talking head to the Board and then install that loyalist as Chair when Powell's term as Chair expires four months later.

And to be clear, Trump can do all of that even on the assumption that he cannot simply fire the Fed Chair at will--at least so long as the Senate goes along. And why wouldn't the Senate that confirmed RFK Jr., Pete Hegseth, and Kash Patel confirm anyone Trump names? To assure confirmation, the nominee might have to disingenuously forswear accommodative monetary policy to win over the likes of mock-credulous Senators like Susan Collins. But once in office, the new Fed Chair would do Trump's bidding (insofar as other Board members allowed).

Will it happen? Maybe not. Yesterday Trump, in an apparent effort to reassure Wall Street, announced that he has no plans to fire Powell. And perhaps the same fear of market jitters will prevent him from naming a craven loyalist as Powell's successor next year. But perhaps not.

Meanwhile, Trump's talk of firing the Fed Chair could influence the outcome of Trump v. Wilcox, currently pending on the Supreme Court's emergency docket. Trump illegally ousted National Labor Relations Board (NLRB) members Gwynne Wilcox and Merit Systems Protection Board (MSPB) member Cathy Harris. The Solicitor General argues that the laws limiting the president's power to remove them are unconstitutional, urging an extremely narrow role for Humphrey's Executor v. United States (1935), which upheld good-cause removal protections for Federal Trade Commissioners. It's no secret that the conservatives on the Roberts Court want to narrow Humphrey's even further or even overrule it. But if doing so would empower Trump to fire the Fed chair, might they think twice about so ruling?

Probably not. In the past, the Court has suggested that it would try to distinguish the good-cause removal protections for Federal Reserve Board members so that it could get rid of most restrictions on the president's removal power--except for the Fed. I don't think the distinctions on offer make a whole lot of sense, but that's unlikely to deter the Roberts Court.

Nonetheless, I see a silver lining here. In Wilcox the SG doesn't merely say that Humphrey's should be narrowed. The SG also says that a federal district court lacks the power to order the reinstatement of an unlawfully fired officer. Suppose SCOTUS were to agree. Suppose that the ever-mercurial Trump then fired Powell and every other Federal Reserve Board member. The Court could say that the firing was illegal because Humphrey's Executor remains good law for the Fed (because reasons!), but then it would be in a pickle: if a court lacks power to order reinstatement, then there would be no effective remedy. The Court would have boxed itself in.

For that reason, I'm hopeful that even if the Court rules in Wilcox that the good-cause removal protection for NLRB and MSPB members is unconstitutional, it will not say that district courts lack the power to order reinstatement. That would be good both to preserve the reinstatement power for a case involving the Fed and because it's the right call in Wilcox.

How do I know? Because an amicus brief in Wilcox was submitted by seven "legal scholars on federal courts, jurisdiction, procedure, remedies, and the law governing federal adjudication of constitutional and statutory claims against the Federal Government and its officers." I am one of those seven legal scholars. Our brief argues that "history and precedent definitively establish that federal courts have the authority to order the government to retain in office or restore to office a federal officer removed unlawfully or threatened with such removal . . . ."

There is thus some reason to hope that Trump's currently-withdrawn-but-renewable threat to Fed independence will sufficiently spook the Justices into doing something right in Wilcox.

--Michael C. Dorf

Find all the essays in the Wait, Can He Actually Do That? series here.