Unraveling the legal, economic and market ramifications if Trump tries to fire

If President Donald Trump tries to fire Federal Reserve Chair Jerome Powell, it would almost certainly set off a courtroom battle that legal and policy experts say is bound to get messy, with uncertain impacts on the central bank, financial markets and the economy.

The tempestuous situation poses a myriad of thorny questions for which there are no easy answers considering no president ever has tried to unseat a Fed chair.

Among them:

• Does Trump have the authority to remove Powell? The answer is almost certainly no, not without meeting the legal threshold of “cause.” However, that raises additional questions over what would constitute cause, with growing suspicion in Washington and Wall Street that the president is using criticism over the Fed’s building expansion as a pretext to establish that condition.
• What happens next from a legal standpoint? Most people familiar with the situation say Powell would sue if Trump tries dumping him. The case likely would head to the Supreme Court, which ruled recently that the quasi-governmental Fed is a special entity immune from arbitrary personnel moves regarding governors. But that didn’t address the issues surrounding cause.
• Beyond a lawsuit, what else could Powell do? If he gets fired as chair of the Board of Governors, the Federal Open Market Committee, which is the Fed body that sets interest rates, simply could retain Powell as chair, giving him continued influence over monetary policy. The FOMC chair historically has been the Fed board chair, but that’s not a requirement.
• Does Trump really want to fire Powell, or is he simply setting him up as a scapegoat should the economy go south? The president has shown himself to be a shrewd and often times calculating political player, and having Powell around as a punching bag could be useful as crucial mid-term elections approach.

“What is extraordinary here is the president going back and forth and discussing loudly whether he might fire or try to fire the Fed chair,” said Bill English, the Fed’s former director of monetary affairs and now a Yale professor. “Of course, we’ve never gone through that, so we don’t know legally how that would work and how the courts would see that and so on. So, I think it’s all things that we haven’t seen before, and raises real uncertainties.”

After an extended campaign of ad hominem attacks on Powell and demands for lower interest rates, Trump met with Republican congressional members Tuesday evening and asked them if he should fire the Fed chair, according to a senior administration official.

After the GOP members showed their backing for the move, the president indicated to them he would move on Powell “soon,” the official said.

However, no sooner did news break of the meeting then Trump told reporters that he’s not considering a move, saying it’s “highly unlikely” while simultaneously wondering out loud whether alleged mismanagement of the $2.5 billion expansion might qualify as cause.

Subsequent reports suggested that Trump’s lawyers indicated that he would have a hard time legally dismissing Powell. The Supreme Court’s ruling in Trump v. Wilcox this year called the Fed a “uniquely structured, quasi-private entity” whose governors enjoy insulation from removal for political or policy reasons.

That, of course, does not mean Trump won’t try.

“It’s a very high bar legally, but there also haven’t been really any historical precedents for it,” Jonathan Kanter, former assistant attorney general during the Biden administration, said on CNBC. “So it would get litigated in court, probably be quite a bit of a circus, but, yeah, the standard is very high. It has to be for cause, and it has to be for neglect, malfeasance, abuse.”