Federal Reserve Chairman Jerome Powell was defiant this week when asked whether he would resign if asked by President-elect Donald Trump.
“No,” Powell said, pausing to register a one-word answer for reporters gathered at a news conference in Washington, D.C., a few blocks from the White House. When asked if there was a possibility that President Trump could be fired or demoted, Powell countered, saying, “That’s not allowed by law.”
Prominent allies of President Trump responded within hours. “The executive branch should be under the command of the president,” Republican Sen. Mike Lee of Utah wrote on X with a screenshot of Powell’s comments. “One more reason to #EndTheFed,” Lee added.
Billionaire entrepreneur Elon Musk, a major donor to President Trump, reposted Lee’s message with emojis to show his full support.
The high-stakes standoff is what President Trump can do to overcome the Fed’s longstanding independence, whether such maneuvers are effective, and what it means for ordinary Americans. This raises questions about whether
Here’s what you need to know, according to experts.
What can President Trump do to interfere with the Fed?
The Federal Reserve Act, which established the central bank in 1913, granted it a degree of independence from the White House.
But in reality, the Fed has enjoyed independence only since the early 1950s, when the central bank eliminated the policy-making role previously held by the Treasury Department.
Federal law allows the president to remove Fed members, including the Fed chairman, “for cause.”
Experts interviewed by ABC News acknowledged that there is legal ambiguity as to what constitutes sufficient grounds for removal, but policy debates may challenge such standards. He said it was unlikely to be met. Still, Trump could try to oust Powell and test how courts interpret the law, experts added, and the case could end up before the conservative-controlled Supreme Court. He pointed out that there is.
“Trump might try, he might try,” said Alan Blinder, an economics professor at Princeton University and former vice chairman of the Federal Reserve. “It’s very unlikely that he has that kind of authority, but if he were to take this to the Supreme Court, I don’t know what the Supreme Court would think.”
Instead, Trump could keep Powell on the Fed’s seven-member board but demote him from his role as chairman, Blinder said.
“It’s a sensitive issue that has never been tested,” Blinder said, acknowledging it was not clear whether it would be allowed. “I can’t give you a definitive answer to that.”
Experts say that if the court rejects Mr. Trump or wants a clear path to removing Mr. Powell, Mr. There is a possibility that Congress will be urged to amend it.
“That’s a prerogative of Congress,” Wendy Edelberg, a senior fellow in economic research at the Brookings Institution and director of the Hamilton Project, told ABC News. “This was not written on the top of Mount Sinai.”
Experts say Mr. Trump could also try to influence Fed policy through public criticism of central banks in general and Mr. Powell in particular, as he did many times during his first term.
“I think the president should at least have a say in interest rate policy,” President Trump said at a press conference at his Mar-a-Lago resort in Florida in August.
U.S. Federal Reserve Chairman Jerome Powell during a press conference after the Federal Open Market Committee (FOMC) on November 7, 2024 in Washington, DC.
Bloomberg via Getty Images
Will Trump be able to successfully influence interest rate decisions and why does it matter?
Experts have questioned whether Mr. Trump can significantly influence the Fed’s interest rate decisions, at least in the short term.
Efforts to remove Mr. Powell will likely be tied up in the courts for months, if not years, while efforts to pass new legislation will face stiff odds in the Senate. Experts said it was a filibuster.
Experts added that Mr. Powell is likely to resist the public pressure campaign launched by Mr. Trump, just as Mr. Powell did the first time.
Some experts also said that if President Trump appeared to seriously threaten the Fed’s independence, it could face a significant drop in the stock market. He added that bank executives and other business leaders are likely to voice strong opposition, fearing economic instability and runaway inflation.
Mark Spindell, chief investment officer at Potomac River Capital and co-author of The Myth of Independence: How Congress Governs the Federal Reserve That would be extremely destructive.” “I think the market will be an important consideration in all of these efforts.”
But Claudia Sahm, chief economist at New Century Advisors and a former Fed official, said Trump could simply wait for an opportunity to appoint someone loyal to the central bank. When Powell’s term expires in 2026, Trump will appoint his successor, who must be approved by the Senate.
“Frankly, it would be easier to just wait a year and nominate someone else,” Sahm said.
Sahm added that the Fed’s independence status poses important questions to the public. Sahm said that central banks lacking independence can derail their dual mandate of stabilizing inflation and maximizing employment, as politicians tend to prioritize short-term economic performance over long-term stability. He said it was highly sexual.
“If you have a central bank that does what the president wants rather than what the economy needs, you could end up with high inflation, high unemployment, and financial instability,” Sahm said.
