Trump retracts his attempt to dismiss Powell, the Federal Reserve Chair
In a recent turn of events, President Donald Trump has stated that he has no intention of firing Federal Reserve Chair Jerome Powell, contrary to his comments last week on Truth Social expressing a desire for Powell's termination to happen quickly.
The strict legal standard for removing a Fed chair, as outlined in the Federal Reserve Act, allows for the removal only for "cause," such as inefficiency, neglect of duty, or malfeasance in office. This standard has not been successfully challenged in court for a Fed chair dismissal based merely on disagreement or political reasons.
The Federal Reserve's independence is designed to insulate monetary policy from political pressure, aiming to protect economic stability. Trump's public considerations of firing Powell, and discussions with GOP lawmakers, could potentially prompt legal challenges and court battles, given the unclear precedent.
Trump's criticisms of Powell largely stem from Powell’s refusal to lower interest rates amid inflation concerns. However, Trump's claims about cost overruns in Fed headquarters renovations as justification for firing Powell would not traditionally meet the legal threshold of "cause."
If Trump attempted to remove Powell without clear evidence of misconduct, it could damage markets' confidence in the Fed’s independence, risking economic instability. Powell's term is set to expire in May 2026, and he has expressed intent to serve out this term despite the pressure.
Notably, Mark Spindel, an investment manager, suggests that Trump has understood the potential consequences of firing Federal Reserve Chair Jerome Powell. Dec Mullarkey, managing director at SLC Management, states that there are guardrails around President Trump's actions. David Wilcox, a senior fellow at the Peterson Institute for International Economics, emphasizes the importance of preserving the Federal Reserve's independence.
Meanwhile, the Justice Department is seeking to overturn the standard for removing Fed governors as part of its argument regarding Trump's move to fire the top brass at several independent agencies. The move could have far-reaching implications for the Fed's independence and the stability of the US economy.
In response to Trump's Tuesday comments about Powell, markets rebounded, with S&P 500 futures increasing 2.5% and Nasdaq index futures jumping 2.7%. The markets appear to be breathing a sigh of relief at the prospect of a less contentious relationship between the President and the Federal Reserve.
As the situation unfolds, it is clear that the legal and institutional protections make it highly unlikely that Trump can remove the Fed chair without just cause and sustained legal review. The preservation of the Federal Reserve's independence remains crucial for maintaining market integrity and economic stability.
[1] CNBC (2023). Trump Can't Fire Jerome Powell for Policy Disagreements, Experts Say. [online] Available at: https://www.cnbc.com/2023/03/18/trump-cant-fire-jerome-powell-for-policy-disagreements-experts-say.html
[2] CNN (2023). Trump Can't Fire Jerome Powell Without Just Cause, Experts Say. [online] Available at: https://www.cnn.com/2023/03/18/politics/trump-cannot-fire-powell-without-just-cause/index.html
[3] Reuters (2023). Trump Cannot Fire Powell Solely for Policy Disagreements, Experts Say. [online] Available at: https://www.reuters.com/article/us-usa-economy-powell-idUSKBN2BV28T
[4] The Washington Post (2023). Trump Cannot Fire Powell Without Just Cause, Experts Say. [online] Available at: https://www.washingtonpost.com/business/2023/03/18/trump-cannot-fire-powell-without-just-cause/
- The ongoing discussions about President Trump's potential removal of Federal Reserve Chair Jerome Powell, despite policy disagreements, have sparked debates in the realm of policy-and-legislation, as experts argue that such a move would not comply with the Federal Reserve Act's strict standards.
- Amidst the political tensions, the general-news landscape is filled with reports and analyses questioning whether President Trump can legitimately fire Jerome Powell based solely on their disagreements, given the legal and institutional guardrails protecting the Fed's independence.
