Trump and the Federal Reserve’s independence
Although less imminent now, the risk remains that the Fed’s anti-inflation credentials will be diminished under his presidency
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PRESIDENT Donald Trump recently escalated his long-running attack on Federal Reserve chair Jerome Powell, lambasting him for keeping interest rates too high and accusing him of “playing politics”. He lamented that “Powell’s termination cannot come fast enough!” and warned: “If I want him out, he’ll be out of there real fast, believe me.”
After a strong negative market reaction, the president backtracked, until further notice, and said he does not intend to fire the Fed chair. Such an attempt would test the legal safeguards that protect the Federal Reserve from political pressure and destabilise financial markets, as Treasury Secretary Scott Bessent reportedly warned Trump and the White House in private.
The legal background
The Federal Reserve Act sets clear limits: Under Title 12 of the United States Code paragraph 242, the president may remove a Fed governor or chair only “for cause”. Courts have long held that “cause” means misconduct or incapacity and does not apply to differing views on policy. This suggests that any attempt to dismiss Powell on those grounds would collapse under legal scrutiny.
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