President Donald Trump this week called on a Federal Reserve governor to resign over an accusation of mortgage fraud, the latest effort by his administration to exert greater control over one of the few remaining independent agencies in Washington.
Powell’s caution has infuriated Trump, who has demanded the Fed cut borrowing costs to spur the economy and reduce the interest rates the federal government pays on its debt. Trump has also accused Powell of mismanaging the U.S. central bank’s $2.5 billion building renovation project.
Firing the Fed chair or forcing out a governor would threaten the Fed’s venerated independence, which has long been supported by most economists and Wall Street investors. Here’s what to know about the Fed:
Economists have long preferred independent central banks because they can more easily take unpopular steps to fight inflation, such as raise interest rates, which makes borrowing to buy a home, car, or appliance more expensive.
Yet Volcker didn’t flinch. By the mid-1980s, inflation had fallen back into the low single digits. Volcker’s willingness to inflict pain on the economy to throttle inflation is seen by most economists as a key example of the value of an independent Fed.
An effort to fire Powell would almost certainly cause stock prices to fall and bond yields to spike higher, pushing up interest rates on government debt and raising borrowing costs for mortgages, auto loans, and credit card debt. The interest rate on the 10-year Treasury is a benchmark for mortgage rates.
Most investors prefer an independent Fed, partly because it typically manages inflation better without being influenced by politics but also because its decisions are more predictable. Fed officials often publicly discuss how they would alter interest rate policies if economic conditions changed.
If the Fed was more swayed by politics, it would be harder for financial markets to anticipate — or understand — its decisions.
Fed chairs like Powell are appointed by the president to serve four-year terms, and have to be confirmed by the Senate. The president also appoints the six other members of the Fed’s governing board, who can serve staggered terms of up to 14 years.
Trump will be able to replace Powell as Fed chair in May 2026, when Powell’s term expires. Yet 12 members of the Fed’s interest-rate setting committee have a vote on whether to raise or lower interest rates, so even replacing the Chair doesn’t guarantee that Fed policy will shift the way Trump wants.
Congress, meanwhile, can set the Fed’s goals through legislation. In 1977, for example, Congress gave the Fed a “dual mandate” to keep prices stable and seek maximum employment. The Fed defines stable prices as inflation at 2%.
The 1977 law also requires the Fed chair to testify before the House and Senate twice every year about the economy and interest rate policy.
The Supreme Court earlier this year suggested in a ruling on other independent agencies that a president can’t fire the chair of the Fed just because he doesn’t like the chair’s policy choices. But he may be able to remove him “for cause,” typically interpreted to mean some kind of wrongdoing or negligence.
It’s a likely reason the Trump administration has zeroed in on the building renovation, in hopes it could provide a “for cause” pretext. Still, Powell would likely fight any attempt to remove him, and the case could wind up at the Supreme Court.
