Why Jerome Powell — not Trump — will decide when the Federal Reserve chief exits the scene

President Trump’s recent threat to remove Federal Reserve Chair Jerome Powell could set the stage for a clash as Powell’s term as head of the central bank comes to an end on May 15. In an interview with Fox Business’ Maria Bartiromo, Mr. Trump expressed his willingness to dismiss Powell if the Fed governor does not step down as planned, citing an ongoing criminal probe into building renovations at the Fed as the catalyst for his decision.

According to Mr. Trump, if Powell does not leave his position on time, the president will have no choice but to fire him. This statement is just one in a series of threats made by Trump regarding Powell’s removal, with the president expressing dissatisfaction with the Fed’s interest rate cuts, which he believes are not happening quickly enough.

However, legal experts have pointed out that firing Powell would be legally questionable. The Federal Reserve Act of 1913 stipulates that the Federal Board of Governors can only be dismissed for serious misconduct, which Powell has not been accused of. Additionally, Fed governors serve longer terms than the Fed chair, allowing Powell to remain on the board even after his term as chair concludes.

Another factor complicating the situation is the slow confirmation process for Kevin Warsh as the new Fed chair. Senator Thom Tillis has stated that he will not vote to confirm any Fed nominees until the Justice Department’s investigation into the Fed renovations is dropped. This delay could prevent a smooth transition from Powell to Warsh, further entrenching Powell’s position at the Fed.

If Trump proceeds with his plan to fire Powell, it is likely to have a negative impact on investors and financial markets. The independence of the Fed in steering monetary policy is highly valued by markets, and any attempt to remove Powell could be seen as political interference.

Furthermore, the Supreme Court is currently considering cases related to the president’s authority to remove leaders of independent federal agencies, including one involving Fed governor Lisa Cook. The outcome of these cases, expected to be decided by late June, could have implications for Powell’s potential removal.

In the meantime, Treasury Secretary Scott Bessent has expressed optimism that Kevin Warsh will be confirmed as the new Fed chair on time, potentially rendering the issue moot. However, the situation remains uncertain, with the possibility of legal challenges and political tensions looming over the Fed’s leadership transition.