There’s only one way Trump can fix Powell’s opposition at the Fed
Upon taking office in January, President Donald Trump should fire Federal Reserve Chairman Jerome Powell. Trump should do so not because he has any policy dispute with the chairman, but to make clear that the Constitution makes all executive branch officials responsible to the president.
Indeed, to preserve the constitutional legitimacy of the Federal Reserve, Powell and his fellow members of the board of governors should resign. Then, to quiet the inevitable critics, Trump should appoint an outstanding academic economist or experienced banker to continue the campaign against inflation.
Trump and Powell have long been on a collision course. Trump has already signaled that he might want to fire the Fed chair. In a 2020 news conference, he stated bluntly, "I have the right to remove" him. For his part, Powell has been equally categorical. Asked at a recent news conference whether Trump could fire him, Powell said that that was "not permitted under the law."
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Powell says Trump couldn't fire him even if he tried. If Trump were to remove the Fed chair, perhaps the most politically insulated official in the federal bureaucracy, he would display his seriousness in uprooting an unelected bureaucracy that, in the name of public health and safety, has stifled the economy and seized political power.
We will not challenge the prevailing wisdom that control of the money supply is best kept out of the hands of elected politicians. Politicians have a short-term interest in lowering interest rates to spur economic growth, even though they might spark inflation that will inflict more severe long-term harm.
But on similar reasoning, the benefits of policymaking by insulated experts could extend to all the federal bureaucracies – why should bankers remain independent, when generals in charge of the nuclear arsenal are not? For better or worse, however, the Constitution commits to the president the final say in such decisions.
Even though Trump himself appointed Powell as Fed chair in 2017, their quarrel has simmered for years. It arises out of the Fed’s power over national monetary policy, which includes the effective authority to set interest rates. Although the Fed cannot completely dictate rates, especially for long-term borrowing, it does set short-term rates through its buying and selling of government securities and its lending facilities.
The Fed’s decisions impact inflation, employment and economic growth, and even determine how much interest the government itself must pay on the national debt. And because the amount of the national debt now is so extraordinarily high – the cost of servicing it, now at $882 billion annually, exceeds national defense spending – an incoming president might well be expected to lean on the Fed to help keep the government’s debt servicing costs down. The Fed is already bringing down short-term interest rates after a period of raising Treasury bill rates sharply, from almost zero in early 2022 to 5.34% in late 2023, to squelch Biden-era inflation.
In his first term, Trump regularly called for lower rates to stimulate economic growth, and once even suggested negative interest rates. During this year’s election campaign, Trump outlined ambitious plans for government spending on new programs (on some estimates, costing as much as $15.5 trillion over 10 years), even while promising a variety of tax cuts that might increase the deficit further.
Although the tariffs Trump is proposing might offset those revenue losses to some extent, and substantial savings in governmental efficiency might possibly be achieved as Elon Musk takes a knife to the bureaucracy, Trump’s proposals would likely require large amounts of government borrowing. That borrowing in turn might create serious inflationary pressures while exacerbating government’s debt costs.
Trump would likely demand that the Fed drop rates further – the success of his entire economic program seems to depend on it. But Powell and his Fed colleagues might resist Trump’s demands for a more relaxed, growth-oriented monetary policy after their failure to stop the once-in-a-generation of the Biden presidency. And if Powell resists, then Trump may want to fire him. The legal question is whether he can.
Powell is not only politically unwise to claim independence from presidential control, but he is also legally mistaken. Trump can fire Powell under the laws that created the Federal Reserve as well as under the Constitution. The legal question has two aspects, one statutory, the other constitutional.
Powell is both the chairman of the Fed’s board of governors and a member of the board. Under the applicable statute, members of the board hold office for a term of 14 years "unless sooner removed for cause." The chairman is to be appointed by the president, with Senate advice and consent, from among the board members, for a term of four years.
Significantly, the statute provides no express protection against removing Powell as chair – though under the statute, Trump would need "cause" to remove him from the board. While there may be an unwritten assumption and a longstanding custom that presidents may not remove Fed chairs from their position, nothing in the text of the statute prohibits them from doing so. Should Trump wish to demote Powell from Fed chairman to Board member, he can.
But can Trump remove Powell (and his colleagues) from membership on the board, given the statute’s requirement that they can only be removed from those positions "for cause?" Even if that restriction of the president’s removal power is assumed to be constitutional (we argue below that it is not), the term "cause" has to be construed in light of the authorities over the executive branch that the Constitution vests in the president.
So construed, "cause" is an extremely broad and flexible term – so broad that it encompasses any valid reason of public policy. "Cause" that is sufficient to meet the statutory standard could therefore be found in the event of major policy disagreements between the president and the board or its chair, or even in a reasonable expectation that such disagreements would arise. While there is no clear Supreme Court case on the meaning of for cause, we think it is not just limited to the commission of a crime or some kind of public malfeasance, but that it also must include refusal to carry out a valid presidential order.
Powell’s claim that no president can fire him appears foolhardy in light of the Supreme Court’s recent cases curtailing the independence of other federal agencies. Powell is not the first government bureaucrat to claim autonomy from presidential removal – which is the only legal means available to the chief executive to compel subordinates to obey his policies.
Earlier judicial precedent might have given Powell reason to hope. To be sure, in Myers v. United States (1926), Chief Justice Howard Taft held that the president must have the authority to remove all executive branch officials, even down to the lowest postmaster, in order to fulfill his constitutional duty to see that the laws are faithfully executed.
But in Humphrey’s Executor v. United States (1935), a New Deal court at odds with President Franklin D. Roosevelt upheld limits on the president’s power to remove the members of the Federal Trade Commission. In Morrison v. Olson (1988), Chief Justice William Rehnquist relied on Humphrey’s Executor to uphold the removal protections of the Justice Department’s independent prosecutor – over Justice Antonin Scalia’s greatest dissent, which followed Taft’s Myers opinion to argue that all officials who execute federal law must remain responsible to presidential removal, and hence control.
As on so many issues, Scalia’s dissent would have its day – with dire results for Powell. For the last two decades, the Roberts court has waged an unrelenting campaign against the independence and power of the administrative state. In 2024’s Loper Bright Enterprises v. Raimondo, the court overruled judicial deference to agency interpretations of the law (known as Chevron Deference).
Two years before, in West Virginia v. EPA, the Court erected a new "major questions" rule that forbids agencies from enforcing regulations that have a major economic, political or social impact without Congress’s explicit authorization. When constitutional historians look back at the Roberts court, they will write that its defining agenda was its assault on the federal bureaucracy.
The heart of the Court’s effort to limit the agencies has been resurrecting the principle of Myers. In 2020, the head of the Consumer Finance Protection Bureau also claimed independence from the president because Congress forbade his removal except "for cause." In Seila Law v. CFPB, the court held the CFPB law unconstitutional and declared that the Constitution gave the president the power to remove the agency’s head. Chief Justice Roberts held that Article II must give the president control over any official who exercises such "significant executive power."
As Myers explained, the Constitution vests "the executive power" of the federal government solely in the president and vests in him alone the responsibility to "take Care that the Laws be faithfully executed." The removal power, which itself is nowhere mentioned in the text, must reside in the president so he can ensure that all inferior officers carry out his vision for law enforcement.
According to the Roberts Court, the Constitution provides only two exceptions to this principle. First, the president need not have removal power over employees who have only "limited duties and no policymaking or administrative authority." Trump cannot fire all the administrative assistants in the executive branch, for example.
Second, the Court refused to overrule Humphrey’s Executor. In a classic example of Chief Justice Roberts’ sometimes unprincipled acrobatics, Seila Law held that the president’s removal power would not run to a multi-member board or commission that does not exercise executive authority. For now, the FTC remains constitutionally secure, because the 1935 Court claimed it did not wield executive authority – a view that today’s court will almost certainly reject in the future.
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Scholars have conducted a healthy, sometimes acrimonious, debate over whether the original understanding of the Constitution does indeed recognize this broad presidential power of removal. But regardless of the answer (though we believe that Chief Justice Taft and Justice Scalia got it right), it is clear and obvious that the Roberts court intends to enforce and even expand it.
Powell might think he can escape the rule of Seila Law because the Federal Reserve operates as a board, rather than an agency with a single head. But he cannot claim that the Federal Reserve exercises no executive authority. It sets interest rates by buying and selling treasuries on behalf of the federal government; its goals of achieving "maximum employment, stable prices, and moderate long-term interest rates" is even set by congressional statute.
Congress has also given the Fed the power to regulate the financial markets and the banking industry, and the important authority to supervise "systematically important financial institutions." These represent core executive functions of enforcing the law toward private individuals and institutions.
The clear implication of the Supreme Court’s recent administrative law decisions for the Fed recommends a wholly different course for Powell. In his press conference, Powell abruptly dismissed any presidential power to remove him. His curt rejection may be the equivalent of waving a red flag in front of Trump.
If Trump seeks to take Powell up on his provocation, he will win in court. That outcome will inflict more harm on the Fed’s credibility than even its failure to head off the destructive inflation of the Biden years. If Powell seeks to protect his institution, the better course would be to resign and allow Trump – at the head of a broad nationwide majority that wants a sharp change in economic policy -- to replace him and his colleagues.