Will Trump fire Fed Chair Jerome Powell?

An 'unprecedented legal battle' could decide the economy's future

Illustration of Jerome Powell and Donald Trump
Trump believes the president "should have a say in rates policy"
(Image credit: Illustration by Stephen Kelly / Getty Images / AP)

During his first term as president, Donald Trump considered firing Federal Reserve Chair Jerome Powell. He backed off then. Would Trump try again in a second term?

Any attempt by Trump to fire Powell could spark an "unprecedented legal battle," said The Wall Street Journal. Powell was asked after the election whether he would resign if Trump asked. "No," said Powell. The president, he said, simply doesn't have the authority to get rid of him. "Not permitted under the law," Powell told reporters. Whether Trump wants to challenge Powell's understanding of the law is still anybody's guess, but a number of advisers believe the Fed's independence from presidential commands "isn't supported by constitutional law and isn't good for the economy," said the Journal.

Subscribe to The Week

Escape your echo chamber. Get the facts behind the news, plus analysis from multiple perspectives.

SUBSCRIBE & SAVE
https://cdn.mos.cms.futurecdn.net/flexiimages/jacafc5zvs1692883516.jpg

Sign up for The Week's Free Newsletters

From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.

From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.

Sign up

What did the commentators say?

"Trump has every reason to be worried about the Fed," Jason Furman said at The Dispatch. Trump's agenda of high tariffs and big tax cuts would likely produce "upward pressure on inflation," and the Fed would likely respond by raising interest rates again. "Most presidents would prefer lower interest rates to higher ones," Furman said, especially because the high rates make it harder for Americans to get affordable mortgages. That's unpopular. But there's reason for Trump to be cautious about meddling with Powell. "Decades of research" have demonstrated that independent central banks "can achieve lower and more stable inflation" than the alternative.

Trump "won't try to fire Jay Powell," Victoria Guida said at Politico. That's because the stock market would probably react badly. It happened before when Trump threatened in 2018 to fire Powell after the Fed raised rates. Stocks slid and only recovered once Trump backed down. "The markets will not like interference by any administration," said Stifel's Brian Gardner. Trump "might have less room to reassure investors this time around," said Guida.

What next?

Even if Trump fired Powell, the processes of setting interest rates for mortgages and other big loans are "outside of any one person's or institution's control," said CNBC. The Fed sets its own rate benchmarks, but bond market investors also have influence — looking at factors like federal debt, long-term economic growth prospects and the possibility of high inflation. "I think macro trends are way more important," said Kent Smetters, professor of business economics and public policy at Wharton School.

There's another option that Trump has entertained, said Yahoo Finance. He could "demote" Powell by leaving him at the Federal Reserve while installing somebody else as chair. It's an "unsettled legal argument" whether the president has that authority, however. Either way, the end of Powell's tenure may be on the horizon: His term as Fed chair ends in May 2026, said Yahoo. Trump has been clear that no third term will be offered.

Joel Mathis, The Week US

Joel Mathis is a writer with 30 years of newspaper and online journalism experience. His work also regularly appears in National Geographic and The Kansas City Star. His awards include best online commentary at the Online News Association and (twice) at the City and Regional Magazine Association.