Imagine working at a job you love but with a boss you don’t get along with. You endure it because it’s your dream job. Then, the boss leaves, and things start to improve. But suddenly, you learn that the boss is coming back. This is the situation Federal Reserve Chair Jerome Powell is facing with President-elect Donald Trump’s return to the White House.
Within 48 hours of Trump being named president-elect, tensions were already evident during Powell’s press conference after the Fed’s monetary policy meeting. When asked if he would resign if Trump requested it, Powell promptly replied, “No,” without further explanation. When questioned if a president could fire or demote him, Powell asserted that it was not permitted under the law, emphasizing each word to make his point clear.
The tone and brevity of Powell’s responses marked a change from his usual thoughtful demeanor when responding to questions. Powell made it clear that he wouldn’t tolerate personal attacks, insults, or threats, signaling to Trump that he won’t back down.
Although Trump appointed Powell as head of the US central bank in 2017, Powell doesn’t answer to him or President Joe Biden, who reappointed him for a term expiring in 2026. The Federal Reserve Chair can only be fired for “cause,” which has not been precisely defined but likely requires more than just policy differences with the president.
Despite threats from Trump to remove Powell during his first term, it seems Trump may allow Powell to complete his term. However, Trump may be gearing up for a battle to influence interest rate decisions by Fed chairs, which would violate the Fed’s duty to act independently from elected officials.
While it remains uncertain if Trump, or any president, could remove the Fed’s independence alone or with congressional approval, the Republican control of Congress and the Supreme Court could increase his chances. Trump later softened his stance on influencing interest rates, stating that he should have the right to discuss them but not make decisions.
Trump’s claims were met with little approval, highlighting the importance of the Fed’s independence in making monetary policy decisions. Powell’s resilience and commitment to his role suggest that he won’t be swayed by external pressures, regardless of who holds the presidency. The independence of the Federal Reserve and its decision-making process are crucial for maintaining economic stability and credibility in the financial markets. Powell’s firm stance against potential interference underscores the importance of upholding the Fed’s autonomy in shaping monetary policy.