Federal Reserve Chair Jerome Powell struck a defiant tone this week when posed with the question of whether he would resign from his position if asked by President-elect Donald Trump.
“No,” Powell said, pausing to let the one-word answer register with the reporters assembled at a press conference in Washington, D.C., blocks away from the White House. When asked whether Trump could fire or demote him, Powell retorted: “Not permitted under the law.”
Prominent Trump allies responded within hours. “The Executive Branch should be under the direction of the president,” Republican Sen. Mike Lee of Utah posted on X atop a screenshot of Powell’s comments. Lee added: “Yet another reason why we should #EndTheFed.”
Billionaire entrepreneur Elon Musk, a top Trump donor, reposted the message from Lee with an emoji appended, indicating Musk’s full support.
The high-stakes standoff has elicited questions about what Trump could do to overcome the Fed’s longstanding independence, whether such maneuvers could prove effective and what it may mean for everyday Americans.
Here’s what to know, according to experts:
What could Trump do to meddle with the Federal Reserve?
The Federal Reserve Act, which founded the central bank in 1913, granted the central bank a measure of independence from the White House.
In actuality, however, the Fed has only enjoyed independence since the early 1950s, when the central bank did away with a policymaking role taken up by the Treasury Department.
Federal law allows the president to remove a Federal Reserve governor, including the Fed chair, “for cause.”
Experts who spoke to ABC News acknowledged that some legal ambiguity looms over what type of conduct warrants sufficient cause for removal, but they said a policy dispute is unlikely to meet such a standard. Still, Trump could attempt to push out Powell and test how courts interpret the law, experts added, noting that the case could end up with the conservative-majority Supreme Court.
“Trump could try and he might try,” Alan Blinder, a professor of economics at Princeton University and former vice chairman of the Federal Reserve. “It’s very unlikely that he has that authority, but if he takes this to the Supreme Court, I don’t know what to think of the Supreme Court.”
Instead, Trump could leave Powell in his position on the Fed’s 7-member Board of Governors but demote him from his role as chair, Blinder said.
“That’s a subtle question that has never been tested,” Blinder said, acknowledging a lack of clarity about whether it would be allowed. “We can’t answer that quite as definitively.”
If the courts reject Trump or he wants a sure path to the removal of Powell, Trump could push Congress to amend the Federal Reserve Act in a manner that weakens or eliminates the Fed’s independence, experts said.
“It’s Congress’s prerogative,” Wendy Edelberg, director of the Hamilton Project and senior fellow in economic studies at the Brookings Institution, told ABC News. “This isn’t something written at the top of Mount Sinai.”
As he did on numerous occasions over his first term, Trump could also try to influence Fed policy through public criticism of the central bank in general and Powell in particular, experts said.
“I feel the president should have at least [a] say in there,” Trump said about interest rate policy during a press conference at his Mar-a-Lago resort in Florida in August.
Jerome Powell, chairman of the US Federal Reserve, during a news conference following a Federal Open Market Committee (FOMC) meeting in Washington, D.C., Nov. 7, 2024.
Bloomberg via Getty Images
Could Trump successfully influence interest rate decisions, and why does it matter?
Experts cast doubt on the prospect of Trump meaningfully influencing the Fed’s interest rate decisions, at least in the short term.
The attempted removal of Powell would likely get tied up in the courts for months, if not years, while an effort to pass new legislation would face steep odds in the Senate, where it would need to overcome a 60-vote threshold necessary to overcome a filibuster, the experts said.
Powell would likely resist a campaign of public pressure undertaken by Trump, just as Powell did the first time around, experts added.
Trump would also face a potentially steep decline in the stock market if he appeared to seriously threaten the independence of the Fed, some experts said. Bank executives and other business leaders would likely voice stiff opposition, fearing economic instability and runaway inflation, they added.
“Trying to overcome Fed independence would be highly disruptive,” said Mark Spindel, chief investment officer at Potomac River Capital and co-author of “The Myth of Independence: How Congress Governs the Federal Reserve.” “I think the market would be an important consideration in all these efforts.”
Trump, however, could simply wait for his opportunity to appoint loyal personnel at the central bank, according to Claudia Sahm, chief economist at New Century Advisors and a former Fed official. In 2026, Powell’s term will expire and Trump will appoint a replacement, who will then require Senate confirmation.
“Frankly, the easy thing is to wait a year and nominate someone else,” Sahm said.
The status of Fed independence holds important stakes for everyday people, Sahm added. A central bank that lacks independence is more likely to throw its dual mandate of stable inflation and maximum employment out of whack, since politicians tend to prioritize short-term economic performance over long-term steadiness, Sahm said.
“If you have a central bank that does what the president wants instead of what the economy needs, then we can end up with high inflation, high unemployment and financial instability,” Sahm said.