Trump vs. Powell: Testing the Boundaries of Federal Reserve Independence

President Donald Trump has repeatedly hinted at the possibility of dismissing Federal Reserve Chair Jerome Powell. On Thursday, as he prepared to visit the U.S. central bank's headquarters, he criticized Powell as a 'numbskull' for his reluctance to cut interest rates. Should Trump proceed with firing Powell, it would raise significant legal questions about the Federal Reserve's historical independence.

The Federal Reserve Act of 1913, which established the central bank, allows the president to 'remove for cause' members of the Board of Governors, including the Fed chief. However, the law is vague, offering no explicit definition of 'cause' or standard for removal, and no president has ever exercised this power over a Fed board member. If Trump were to remove Powell, it would likely prompt a legal battle, testing the boundaries and assumptions around executive power and agency independence.

In recent years, federal judges have frequently declared Trump's dismissals of officials from independent agencies unlawful. This has introduced questions about the president's authority to remove appointees without cause. A Washington, D.C.-based appeals court is poised to rule on a related matter, potentially setting up another Supreme Court review. The outcome of these cases could significantly impact the future of executive branch power and agency independence, particularly regarding financial regulators like the Federal Reserve.

(With inputs from agencies.)