Can Trump fire Powell? He likely lacks a case, legal experts say

WASHINGTON – President Donald Trump continued his assault on July 16 on Mr Jerome Powell, the chair of the Federal Reserve, saying it was “highly unlikely” that he would fire him “unless he has to leave for fraud”.

The warning shot related to Mr Powell’s handling of a renovation of the Fed’s headquarters in Washington, involving a pair of buildings that are around 100 years old and undergoing a roughly US$2.5 billion (S$3.2 billion) revamp.

The president and his allies have seized on the project, which kicked off in 2021, as a potential avenue to fire Mr Powell over allegations of mismanagement.

But firing a Fed chair is a legally knotty endeavor and one that has not been tested in modern US history. That’s because, under the Federal Reserve Act of 1913, the chair can be ousted only for “cause”, which is typically interpreted to mean malfeasance or gross misconduct.

Legal experts have quickly assessed that the case the president may be building to remove Mr Powell for cause is flimsy and likely to face serious obstacles if Mr Trump follows through with his threats.

“I don’t think there is a case here,” said a legal scholar at Columbia University Lev Menand, “There has to be a showing of misconduct, and Powell would have a lot of avenues to challenge the administration if they proceed against him.”

If Mr Trump fired Mr Powell, the Fed chair would be entitled to both a notice of the charges and an opportunity to be heard by the president before the firing became official, Professor Menand said.

Mr Powell could then go to a US District Court and sue for a preliminary injunction reinstating him. A judge would have to determine whether the chair was likely to prevail in the case either because the process was not followed according to the law or there was insubstantial evidence supporting Mr Trump’s accusations.

Mr Powell has in the past indicated his intention to serve out his term as chair, which ends in May 2026, suggesting that he would not go willingly. His term on the Fed’s Board of Governors does not expire until 2028.

The case would most likely wind up at the Supreme Court.

Fed renovations take center stage

Mr Trump’s animosity toward Mr Powell and the reason he wants him gone stem from the fact that the Fed has defied the president’s demands to substantially lower borrowing costs, instead leaving interest rates unchanged since January.

Mr Trump has argued that the Fed is costing the country a fortune in debt-servicing costs by keeping interest rates at a range of 4.25 per cent to 4.5 per cent. The president, who has blasted Mr Powell as a “knucklehead” and a “very stupid person,” has said the Fed should cut rates to 1 per cent.

But in recent days, the Fed’s renovations have emerged as a new line of attack.

“It’s possible there’s fraud involved with the US$2.5, $2.7 billion renovation. This is a renovation – how do you spend US$2.7 billion?” Mr Trump said on July 16. He later added: “There could be something to that, but I think he’s not doing a good job. He’s got a very easy job to do. You know what he has to do? Lower interest rates.”

The two historic buildings have not been “comprehensively renovated since their construction in the 1930s,” according to the Fed. But the project has run around US$700 million over budget.

Mr Trump and his top aides have homed in on the swelling costs and the inclusion of what they have described as luxury features, arguing that Mr Powell has mismanaged the process and misled Congress about the extent of the plans.

The Fed has pushed back on those claims, saying it has scaled bank many of the additions that had angered Republicans. It also denied there would be a new VIP dining room or a special elevator for top officials as well as expansive use of new marble. In a bid to squash the controversy, Mr Powell asked the Fed’s inspector general this week to review the project.

Will Trump follow through on his threats?

For the moment, Mr Trump has sent mixed signals about his true intentions for Mr Powell. At a meeting with congressional lawmakers late on July 15, the president brandished a draft of a letter firing the Fed chair, though Mr Trump said on July 16 that he had only “talked about the concept of firing him”.

Financial markets initially reacted poorly, but recovered as soon as the president appeared to walk back his threat. Still, Mr Trump continued to pillory the Fed chair over interest rates, just days after his top aides called on Mr Powell to resign – and said they would begin the search for his successor.

Mr Russell Vought, the White House budget chief, also demanded that the chair respond to a set of detailed questions about the renovations by this week.

Some former government officials and monetary policy experts said they believed that the president’s newly raised concerns about the renovations were a poor cover for his real goal to build a Fed more amenable to swift reductions in interest rates.

“The renovation controversy is pretty clearly manufactured faux outrage to try to justify Powell’s for-cause removal,” said Mr Jeremy Kress, a former Fed banking regulator who is a faculty director of the University of Michigan’s Center on Finance, Law and Policy. “Even though it’s obviously pretextual, this is uncharted legal territory, and it’s anyone’s guess how a legal case involving the Fed chair would be decided.”

Defining ‘cause’

Legal experts widely agreed that Mr Trump could not outright fire Mr Powell before the end of his term simply because of a disagreement over decisions related to monetary policy.

Even though the Supreme Court recently empowered the president to fire the leaders of independent agencies, the justices took care to caution that their ruling did not apply to the Fed, which they described in a May order as a “uniquely structured, quasi-private entity”.

Mr Daniel Tarullo, a former member of the Fed board who is a professor at Harvard Law School, said that had amounted to a “pretty clear statement by the court” about the special protections afforded to the Fed.

But he said there had been a shift in the debate over the last few days, as the Trump administration had started to discuss publicly whether it could try to fire Mr Powell on grounds that he behaved improperly regarding its renovations.

Mr Tarullo, for one, said that there was “very little judicial precedent on what constitutes cause” in this case, and that it could vary from statute to statute, with some laws prescribing that an official can be “removed only for inefficiency, neglect of duty or malfeasance”. NYTIMES