Since President Donald Trump launched tariffs on countries including China, now the world’s second-largest economy, markets have stumbled. The Dow is on track for its worst April since the Great Depression of 1929.  

But Trump has found a scapegoat for the country’s economic slowdown in Fed Chairman Jerome Powell—a fellow Republican whom he appointed in 2018—blaming him for refusing to cut interest rates. 

Most recently, Trump floated the idea of firing Powell—an action that would be unprecedented in the Fed’s 111-year history.  

While Trump believes he has the authority to remove Powell, the Fed chief has stated he would not leave his seat voluntarily. Under US law, a Fed chief or board member can only be removed from their posts if they “cause” misconduct, a legal phrase that remains open to interpretation.  

“The definition of ‘cause’ that can be cited as a reason for leaving or dismissal is not clear,” Mehmet Babacan, a professor of economics at Marmara University, who has worked in different capacities involving central bank policies, told TRT World.

Most legal and financial experts agree that “cause” typically refers to corruption and misconduct, not policy disagreements. Trump’s frustrations with Powell stem solely from the latter’s refusal to slash interest rates amid rising inflation—which experts say is weak ground for dismissal under current interpretations of the law.  

Kevin Hassett, one of Trump’s top economic advisers, and a potential Powell replacement, has referred to a new “legal analysis” that might permit the president to remove the Fed chief. However, neither Hassett nor any White House official has clarified what that analysis entails.  

To fire, or not to be fired?

“My personal opinion is that Trump can take advantage of the loophole in the law, but when the Fed was established in 1913 and the regulatory duties were redefined in 1935, there were statements that were presumptive that the Fed chief could not be removed from office (on policy disagreements),” Babacan said. 

Still, he concedes, with Trump, an unpredictable president, anything is off the table. “We are talking about a man who is sticking his neck out in an environment where almost everyone around him is saying that tariffs are inflationary and recessionary.” 

Even if Trump succeeds in removing Powell, finding a replacement who would simply follow presidential orders isn’t straightforward. Of the seven current Fed board members, four were appointed by President Joe Biden, and have Democratic tendencies. 

Nurullah Gur, another economics professor at Marmara University agrees firing Powell would be challenging. He said any attempt to remove Powell would need to be based on credible evidence of misconduct.

“While rules concerning firing the Fed chief are vague, it is not possible to evaluate a statement such as ‘he did not reduce interest rates’ under the rule of abuse of power,” Gur told TRT World.

Gur draws attention to an important Supreme Court decision that dates back to 1935.  Humphrey's Executor v United States, ruled that the president can not fire executive officials of autonomous agencies like the Fed with a quasi-legislative or quasi-judicial administrative mandate, referring to former President Franklin Roosevelt’s removal of William Humprey, a member of Federal Trade Commission (FTC). 

While the Federal Trade Commission Act rules that the president can dismiss an FTC member for reasons of "inefficiency, neglect of duty, or malfeasance in office", Roosevelt fired Humphrey based on their own political differences, for example their conflicting approach towards the New Deal, a liberal policy. 

Gur reiterates that under current legal framework Trump can not fire Powell based on policy differences. But he adds that Trump can still go for such a decision, despite legal obstacles and strong political precedents, because he is willing to test limits no one else has.  

A senior adviser to a leading Turkish banking authority, who asked to remain anonymous to respect rules of his professional conduct, suggests that Trump will try to fire Powell. “My guess is that he (Powell) will most likely be removed or have him resign,” he told TRT World.  

Trump needs to blame someone for economic troubles, and Powell, whom the president has repeatedly criticised being “late” and “slow”, is the obvious target, added the source.  

But Gokhan Ovenc, an economist and academic at Istanbul University, believes removing Powell would be catastrophic for the US financial system, stating the Fed’s independence is foundational. “If it happened, then, the whole doctrine would be trashed,” Ovenc told TRT World. 

Why Trump and Powell disagree

There are two dynamics playing out in the debate between the president and Fed chair, according to Ovenc. 

First, Trump wants to rally public support by shifting blame for inflation and economic slowdown from his tariffs to the Fed’s monetary policy. But Powell, recognising that tariffs themselves are inflationary, refuses to cut interest rates, Ovenc explained. 

According to a common economic understanding, interest rates should not be cut as inflation goes up.

Second, Trump and Powell have fundamentally different views on monetary policy and price stability, according to Ovenc. Trump wants interest cuts, which might lead to monetary expansion, possibly resuscitating economic activities and increasing consumer spending, he said.

But Powell sees that monetary expansion will increase inflation, leading to price instability, something the Fed has been always concerned about.

Politicians like Trump prioritise economic growth over other concerns while economic leaders like Powell aim for price stability, a top Fed priority, Ovenc explained.

“We will only make our decisions based on…our best analysis of the data. That’s the only thing we’re ever going to do,” Powell said last week, refusing to align with Trump politics. 

Under current circumstances, it would be difficult to cut interest rates as inflation is higher than two percent, a Fed target, and Trump’s delayed tariffs might also put more pressure on inflationary trends, said Gur. 

“If Trump removes Powell, that might increase financial risks leading to high inflation and an economic recession. Both US and global markets would potentially perceive the removal of the Fed chief as an irrational decision,” he added.