How independent is the Fed against Trump? Can POTUS fire Powell?

US President Donald Trump continues to pile pressure on Federal Reserve Chair Jerome Powell to cut interest rates. Much like his sentiments before he entered the Oval Office on January 20, he has threatened to push Powell out of his seat at the central bank table. 

The central bank has refused to lower interest rates in 2025, despite Trump’s repeated calls to do so. Trump, who initially appointed Powell as Fed chair in 2017, has grown increasingly critical of his decisions, accusing him of being too slow in easing monetary policy and suggesting the Fed should follow the European Central Bank’s example.

Powell and other political figures in the economic and financial community reckon that any move that forces changes in the Federal Reserve’s autonomy could destabilize the US economy and damage global confidence in American monetary policy.

Economic leaders are against politicizing the Fed

Policymakers, mostly liberals, are asking if the POTUS has the legal authority to remove the Federal Reserve Chair. Most scholars agree that a president cannot dismiss a member of the Fed’s Board of Governors without cause, but the legality of removing the chair specifically remains ambiguous. It could ultimately be tested in the Supreme Court.

*TRUMP: JEROME POWELL IS ALWAYS TOO LATE AND WRONG

*TRUMP: POWELL’S TERMINATION `CANNOT COME FAST ENOUGH'

*TRUMP: FED SHOULD HAVE LOWERED INTEREST RATES LONG AGO

— *Walter Bloomberg (@DeItaone) April 17, 2025

In his latest press briefing, Powell told the public that the chair cannot be removed by the president except for cause, a standard that would require evidence of misconduct or incapacity. He is supposedly prepared to challenge any attempt by Trump to force his removal.

Chicago Federal Reserve President Austan Goolsbee also defended the Fed chair and the central bank’s independence. In an interview on CBS’s Face the Nation, Goolsbee cautioned the Trump administration not to meddle with the Fed’s autonomy.

“In countries where central banks don’t have such independence, inflation is higher, growth is slower, and the job market is worse,” Goolsbee said.

What the Fed actually does, and why it needs independence

Itai Goldstein, Professor of Finance and Economics at the University of Pennsylvania’s Wharton School and head of the Finance Department, said in a Monday interview that central bank independence is “absolutely crucial” to the health of the economy.

“There are many debates in economics, but this is one of the issues on which we probably have something close to consensus. Once the central bank loses its independence, we cannot count on monetary policy to do the right thing. And this can be very bad for the economy,” he asserted.

Goldstein explained that the Federal Reserve is mandated to independently manage the economy, starting with its responsibility of setting interest rates and controlling the money supply. 

Beyond monetary policy, the Fed is also tasked with maintaining America’s financial stability, including supervising the banking sector and responding to financial crises. The consensus around central bank independence does rest on its monetary functions, but, per Goldstein, there is less agreement over how much authority it should have in areas like bank supervision.

“If there is a threat to the independence of the central bank in a place like the United States with all its history, then markets are going to conclude from that, that economic conditions going forward are not going to be like we were used to in the past.”

Economists like Goldstein argue that it will come at a cost.

“There is always a short-term benefit from stimulating the economy,” Goldstein propounded. “The problem is often with the long-term cost of doing that.”

Goldstein concluded that the temptation for governments to interfere with monetary policy is precisely why the Fed’s independence must be preserved. 

“Even if it is more painful in the short run,” he said, “it will benefit the economy in the long run.”

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