A firing of Jerome Powell by President Trump would likely open up a legal war never before seen in the US, without any guarantee of a courtroom victory for the White House.
That may be why Trump hasn’t done so. Yet.
Powell has made his intentions clear. He said earlier this year that he wouldn’t leave if Trump tried to fire him and that his removal is “not permitted by law.”
Fed officials privately have been preparing for a legal battle as far back as Trump’s first term, when the president also toyed with removing the chair, according to the Wall Street Journal.
The strength of Powell’s case is based on some protections of Fed autonomy already embedded in US statute.
The Federal Reserve Act, which created the central bank in 1913 and was amended in 1935, states that each member of the Fed board shall hold office for 14 years “unless sooner removed for cause by the President.”
The intention of the “for cause” condition was to enhance the Fed’s independence by making it more difficult for a president to fire its board members, who are appointed by the president.
There are also signs that the Supreme Court would step in if Trump were to act, although the high court’s views on the topic are unclear.
In an ambiguous ruling earlier this year, Supreme Court justices allowed Trump to temporarily proceed with the firings of board members at two other independent agencies.
In granting the administration’s request, the court said that in its judgment, the government “is likely to show” that the fired board members exercised “considerable executive power,” a view that suggests the president possesses broader power to remove the officials at will.
Read more: How much control does the president have over the Fed and interest rates?
Legal challenges from those board members are still playing out at an appeals court.
But Powell got a good sign Thursday when a Washington, D.C., district court judge ruled that another Trump firing of FTC commissioner Rebecca Slaughter was illegal and that she should be reappointed.
The judge cited a 90-year-old Supreme Court precedent that limits the power of the president to dismiss independent agency board members except in cases of neglect or malfeasance.
That precedent offers Powell a layer of protection. It was set in a 1935 case titled Humphrey’s Executor v. US that challenged President Franklin Roosevelt’s termination of the US Federal Trade Commissioner.
The court held that the president’s authority to terminate agency officials at will was limited to purely executive officers, and not those leading independent agencies that engage in regulation and adjudication.
Congress, the court said, had power to limit the president’s removal power over those officials “for cause” — then described that term to mean inefficiency, neglect of duty, or malfeasance.
Trump is challenging whether that precedent applies across various independent agencies, but the Supreme Court has not yet made a definitive ruling on whether it should stand. If the precedent falls and leaves no explicit protection for the central bank, a Powell firing could certainly be a lot easier to pull off.
‘For cause’
Powell does have one major vulnerability, however. That “for cause” language embedded in the Federal Reserve Act hasn’t really been defined or tested in court. The statute also doesn’t have any language that specifically addresses the chair of the Board of Governors.
And the White House has been using a new line of attack against Powell that could offer a path to a “for cause” dismissal, as the president and his allies raise concerns about a $2.5 billion renovation of the central bank’s headquarters.
“I mean it’s possible there’s fraud involved with the $2.5 billion renovation,” Trump told reporters on Wednesday, after saying earlier that the project “sort of is” a fireable offense.
He said he wasn’t planning to fire Powell but also left the door open, saying, “I don’t rule out anything, but I think it’s highly unlikely, unless he has to leave for fraud.”
National Economic Council director Kevin Hassett — one of Powell’s potential successors — said last Sunday on ABC News’s “This Week” that whether the president has the legal authority to fire Powell before his term is up next May “is being looked into” and that “certainly, if there’s cause, he does.”
But he also acknowledged it was a “highly uncertain legal matter.”
Politico reported that outside lawyers told the White House counsel’s office it would likely lose a legal fight with Powell if Trump removed Powell solely over accusations that he mishandled renovations and that White House officials were also unsure whether it would work.
Politico quoted one official who said, “Whether or not it’s illegal, I don’t know. But is it a good thing to point out to damage this guy’s image? Yeah.”
The White House is certainly showing no signs of letting up on its pressure. They are seeking a site visit to see the Fed’s renovations in person.
Powell has asked the Fed’s inspector general to review the costs involved. He also sent White House budget director Russ Vought a letter Thursday offering a point-by-point rebuttal of questions raised about the project and denying reports of a VIP elevator and VIP dining rooms.
“We take seriously the responsibility to be good stewards of public resources,” he said, and “we have taken great care to ensure the project is carefully overseen.”
Case Western Reserve University business law professor Eric Chaffee said he thinks Powell would win any legal battle with the White House on the “for cause” clause, but he doesn’t think such a confrontation will come to pass given that Powell only has 10 months left as chair.
“We’re just so close to the end of the term that I think the Trump administration is very likely just to wait things out,” he said.
Alexis Keenan is a legal reporter for Yahoo Finance. Follow Alexis on X @alexiskweed.
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