By Christopher Lugerber, Economics writer for the Associated Press
WASHINGTON (AP) — Donald Trump has stepped up his attack on Federal Reserve Chairman Jerome Powell while the Supreme Court is considering lawsuits that could make it easier for the president to fire him.
The development comes against the backdrop of wider disruption in the economy and financial markets brought about by the cleaning tax on Trump’s imports. Most economists worry that long-standing assault on independence from Fed politics will further disrupt the market and increase the uncertainty that envelops the economy.
In comments at the White House on Thursday, Trump suggested he has the power to eliminate Powell and criticised him for not actively cutting interest rates.
“If I wanted him, he’d come out of there really quickly, trust me,” Trump said. “I’m not happy with him.”
All scrutiny poses a threat to the Fed’s respected independence, which has long been supported by most economists and Wall Street investors. There are a few questions and answers about the Fed.
Why is the Fed’s independence important?
The Fed is wielding widespread power over the US economy. By reducing short-term interest rates, it controls – it usually does when the economy collapses – the Fed makes borrowing cheaper, drives more spending, and promotes growth and employment. If we cool the economy and increase the rates we do to combat inflation, it can weaken the economy and cause unemployment.
Economists have long preferred independent central banks because they can take more easily unpopular measures to combat inflation, such as raising interest rates.
The importance of an independent Fed was solidified by most economists after an extension of the inflationary spike in the 1970s and early 1980s. Former Fed Chairman Arthur Burns has been widely accused of allowing painful inflation of that era to accelerate by succumbing to pressure from President Richard Nixon, leading to the 1972 election. Nixon feared that higher fees would cost him the election, and he won on a landslide.
Paul Volker was eventually appointed chairman of the Fed by President Jimmy Carter in 1979, who pushed the Fed’s short-term rate to an astonishingly high level of 20%. (Currently at 4.3%). The eye-opening rate has caused a sharp recession, pushing unemployment to nearly 11% and spurring widespread protests.
However, Volker was unflinching. By the mid-1980s, inflation had returned to the low single digits. Volcker’s willingness to inflict pain on the economy is considered by most economists as an important example of the value of the independent Fed.
What do Wall Street investors think?
Efforts to fire Powell will almost certainly bring stock prices down, bond yields higher, boost interest rates on government debt, and increase borrowing costs for mortgages, car loans and credit card debt.
Most investors prefer an independent Fed, typically because their decisions are more predictable, without the influence of politics, and therefore they generally prefer an independent Fed to better manage inflation. Fed officials often publicly discuss how interest rate policies will be changed if the economic situation changes.
If the Fed is more shaking by politics, it will be difficult for financial markets to predict or understand their decision.
Does that mean the Fed cannot fully explain?
Well, no. A breeding chair like Powell must be appointed by the president to serve a four-year term and confirmed by the Senate. The president also appoints six other members of the federal government’s management committee, although most governors leave before the end of their term.
These appointments allow the president to make significant changes to the Fed’s policies over time. Former President Joe Biden has appointed five of his current seven members: Powell, Lisa Cook, Phillip Jefferson, Adriana Kugler and Michael Barr. As a result, Trump will have fewer opportunities to make appointments. He can replace Kugler, who filled the unduly expired period ending January 31, 2026.
Meanwhile, Congress can set Fed goals through law. For example, in 1977, Congress gave the Fed a “double mission” to stabilize prices and seek maximum employment. The Fed defines a stable price as 2% inflation.
The 1977 law requires the Fed speaker to testify twice annually about economic and interest rate policies before the House and Senate.
But can the president fire up Powell?
Powell says the law establishing the Fed does not allow the president to fire chairs except for causes. There are some complexities in which Powell was appointed individually as a member of the Fed’s board and was promoted to the Chair position by Trump in 2017.
Most jurists agree that Trump cannot fire Powell from the Fed’s board, but there is little agreement on whether the president can remove him as chairman. In January, superintendent Michael Burr resigned from the post but remained on the board to avoid potential legal clashes over whether Trump could fire him.
If Trump tried to fire Powell anyway, the fight afterwards would almost certainly end in the Supreme Court.
What can the Supreme Court do?
We may get early indications as to how the Supreme Court will decide it this summer. There has already been a lawsuit before the court over the question of whether the president can fire the top staff in an independent body.
The incident stems from the firing of two Trump officials. One comes from the National Labor Relations Commission and the other from an institution that protects workers from political interference. Last week, the Supreme Court had the shots fired while considering the case. This summer, the president can determine that as executive director, he can fire officials from federal agencies, even if Congress intended to make it independent.
The lawsuit overturned a 90-year-old precedent known as Humphrey’s enforcer, and the court ruled that the president could not fire such an officer.
Powell added Wednesday that he was looking closely at the case and may not be the case for the Fed. Lawyers for the Trump administration, who are trying to narrow the focus of the lawsuit, argued that it does not include the Fed.
Both the Trump administration and the Supreme Court judges have previously etched exemptions from the Fed. In February, the White House issued an executive order that would place several financial regulators, including the Fed and Securities and Exchange Commission, into several financial regulators, under the president’s control. However, the order specifically exempts the Fed from its ability to set interest rates from the order.
And in the 2023 case, Judge Samuel Alito said in a footnote that the Fed is a “unique institution with a unique historical background” that is different from other independent bodies. If the court gives the president more power than the head of an independent body, it could be exempt from the Fed.
Original issue: April 18, 2025, 9:19am Edit
